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You are offered an investment that will pay an annual payment for 20 years. The...

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Accounting

You are offered an investment that will pay an annual payment for 20 years. The first payment one year from today will be $125,000 and will increase at the inflation rate. The investment also includes an ending cash flow in 20 years, which means that in 20 years you will receive your last annual payment and the ending cash flow. The value today of the ending cash flow is $750,000 and is expected to increase at 4.5 percent per year. Over the next 20 years, you expect the inflation rate to be 3.5 percent per year. If you require a nominal return of 7 percent on this investment, how much should you be willing to pay?
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