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You own an oil pipeline that will generate a $3.7 million cash return over the coming year. The pipelineAcâ‚¬?cs operating costs are negligible, and it is expected to last for a very long time. Unfortunately, the volume of oil shipped is declining, and cash flows are expected to decline by 5% per year. The discount rate is 8%.
What is the PV of the pipelineAcâ‚¬?cs cash flows if its cash flows are assumed to last forever?
What is the PV of the cash flows if the pipeline is scrapped after 17 years?
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