Income from a certain operation is expected to be zero in years one through five, after which it will be $50,000 per year forever. The capitalized cost of the income at 10% per year is nearest to:a. $252,300b. $282,250c. $310,450d. $500,000

c. $310,450

Explanation:

The computation of the capitalized cost of the income is shown below:

= Present value of the annual cash flow × discount factor for 10 years at 5%

where,

Present value of the annual cash flow  = $50,000 ÷ 0.10 = $500,000

And, the discount factor is

= 1 ÷ (1 + rate) ^ years

= 1 ÷ (1.10)^5

= 0.6209

So, the capitalized cost of the income is

= $500,000 × 0.6209

= $310,450

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