Reference no: EM133030924

Question - 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.

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?