Let's calculate the present value of both assets.

Part 1: Asset 1

• Asset 1 has a required return of 7% and produces a perpetual stream of $300 starting at year 1.

This is a perpetuity, and the present value of a perpetuity is calculated by:

$PV = \frac{C}{r}$

Where:

• $C$ is the annual cash flow ($300),
• $r$ is the required return (7% or 0.07).

$PV = \frac{300}{0.07} = 4285.71$

This matches the provided value of $4,285.71.

Part 2: Asset 2

• Asset 2 has a required return of 10% and will produce the following cash flows:
  • $1,200 in 1 year,
  • $1,300 in 2 years,
  • $800 in 3 years.

We need to calculate the present value of each cash flow using the formula for the present value of future cash flows:

$PV = \frac{CF}{(1 + r)^t}$

Where:

• $CF$ is the cash flow,
• $r$ is the required return (10% or 0.10),
• $t$ is the time period.

Let's calculate the present value of each cash flow separately:

1. Present value of $1,200 in 1 year: $PV_1 = \frac{1200}{(1 + 0.10)^1} = \frac{1200}{1.10} \approx 1090.91$

2. Present value of $1,300 in 2 years: $PV_2 = \frac{1300}{(1 + 0.10)^2} = \frac{1300}{1.21} \approx 1074.38$

3. Present value of $800 in 3 years: $PV_3 = \frac{800}{(1 + 0.10)^3} = \frac{800}{1.331} \approx 601.80$

Finally, sum these present values to get the total present value of Asset 2:

$PV_{\text{Total}} = 1090.91 + 1074.38 + 601.80 \approx 2767.09$

So, the value of Asset 2 today is $2,767.09 (rounded to the nearest cent).

Would you like more details or have any questions?
Here are 5 related questions for further exploration:

1. How would the value of Asset 1 change if the required return increased to 10%?
2. How does the present value formula change for semi-annual payments instead of annual payments?
3. How would Asset 2’s value be affected by an additional cash flow in year 4?
4. What happens to the present value of a perpetuity when the interest rate approaches zero?
5. How do bond pricing models relate to the present value of cash flow streams?

Tip: When calculating present values for multiple cash flows, handle each cash flow individually, then sum them up for accuracy.