Determine the value of a $500 Canadian Pacific Limited perpetual 8 percent debenture if the required rate of return is 14%: (8)
I doubt if your subject is "tsu."
can you help with this answer anyway?
To determine the value of a $500 Canadian Pacific Limited perpetual 8 percent debenture, we need to calculate the Present Value (PV) of the future cash flows generated by the debenture. The required rate of return is 14%.
The debenture pays an 8% interest rate, which is $500 * 8% = $40 per year.
Since the debenture is perpetual, its cash flows are expected to continue indefinitely. Therefore, we need to calculate the Present Value of an infinite stream of cash flows.
The formula to calculate the Present Value of an infinite stream of cash flows is:
PV = Cash Flow / Required Rate of Return
In this case, the PV would be:
PV = $40 / 14% = $285.71 (rounded to the nearest cent)
So, the value of the $500 Canadian Pacific Limited perpetual 8 percent debenture, given a required rate of return of 14%, is approximately $285.71.