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Answer :
The amount of the annual cash flow produced by the tanning salon in 1 year is expected to be $33,160.55 (plus or minus $10).
To calculate the annual cash flow, we can use the formula for the present value of a growing perpetuity. The formula is given by:
PV = CF / (r - g),
where PV is the present value, CF is the cash flow, r is the discount rate (cost of capital), and g is the growth rate of the cash flows.
Given that the present value of the tanning salon is $934,100.00, the cost of capital is 11.65%, and the annual cash flows are expected to grow annually by 8.10%, we can rearrange the formula to solve for CF:
CF = PV * (r - g).
Plugging in the values, we have:
CF = $934,100.00 * (0.1165 - 0.0810) = $934,100.00 * 0.0355 = $33,160.55.
Therefore, the amount of the annual cash flow produced by the tanning salon in 1 year is expected to be approximately $33,160.55, with a small margin of error.
To know more about perpetuities, refer here:
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