Answer :
The present value of the perpetuity is Rs.600,000. To find the present value of a perpetuity, we can use the formula: Present Value = Annual Cash Flow / Rate of Investment.
In this case, Mr. Raju expects to receive Rs.60000 annually from his investment, and the rate of investment is 10%.
Using the formula, we can calculate the present value as follows:
Present Value = 60000 / 0.10 = Rs.600,000.
To solve this problem using financial tables, we can look for the present value factor for a perpetuity with a 10% interest rate. The present value factor for a perpetuity at a 10% interest rate is 10.
Multiplying this factor by the annual cash flow of Rs.60000, we get:
Present Value = 10 * 60000 = Rs.600,000.
To summarize, if Mr. Raju expects to receive Rs.60000 annually from his investment and the rate of investment is 10%, the present value of the perpetuity is Rs.600,000. This can be calculated using the formula Present Value = Annual Cash Flow / Rate of Investment or by using the present value factor for a perpetuity at a 10% interest rate from financial tables.
Formula: Present Value = Annual Cash Flow / Rate of Investment
Given: Annual Cash Flow = Rs.60000, Rate of Investment = 10%
Using the formula: Present Value = 60000 / 0.10 = Rs.600,000
Using financial tables: Present Value = 10 * 60000 = Rs.600,000.
Therefore, the present value of the perpetuity is Rs.600,000.
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