You own a gas pipeline that requires no maintenance

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You own a gas pipeline that requires no maintenance, will produce $10 million next year, and will last forever. Unfortunately, the volume of gas (and thus the revenue from the pipeline) is expected to decline by 3% per year.

a. If the discount rate is 7% and the pipeline lasts forever, what is it worth today?

b. If the pipeline is abandoned (at zero scrap value) at the end of 10 years, what is it worth today?

Reference no: EM132391060

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