Reference no: EM132941172

Freddy Fox has just inherited a commercial building that is expected to produce the following cash flows for the next 8 years:

Year 1: $1,000,000;

Year 2: $1,200,000;

Year 3: $1,400,000;

Year 4: $1,600,000;

Year 5: $1,800,000;

Year 6: $2,000,000;

Year 7: $2,200,000;

Year 8: $2,400,000.

Problem 1: However, Freddy Fox would rather receive the same cash flow each year and as such, he approached a bank to sell the commercial building in return for a fixed cash flow each year for the next 8 years. The bank has agreed to this arrangement, based on an interest rate of 10% p.a. compounded monthly applied to the valuation of the commercial building. If this arrangement goes ahead, how much will Freddy Fox receive each year?