Question
In: Finance
You are offered an investment that will pay you $792, $540, $780, $1,183, $1,749, $895, $1,189,...
You are offered an investment that will pay you $792, $540, $780, $1,183, $1,749, $895, $1,189, and $1,416 over the next eight years (one cash payment per year). You require an 9.1% return on your investment. What is the most you would invest today? (In other words, what is the present value of this cash stream?) Round to the nearest cent.
Solutions
Expert Solution
Present Value of this cash tream is $ 5,629.23
Working:
| Present value of cash stream is calculated as follows: | |||
| Year | Cash Flow | Discount factor | Present Value |
| a | b | c=1.091^-a | d=b*c |
| 1 | $792.00 | 0.9166 | $725.94 |
| 2 | $540.00 | 0.8401 | $453.67 |
| 3 | $780.00 | 0.7701 | $600.65 |
| 4 | $1,183.00 | 0.7058 | $835.00 |
| 5 | $1,749.00 | 0.6470 | $1,131.53 |
| 6 | $895.00 | 0.5930 | $530.73 |
| 7 | $1,189.00 | 0.5435 | $646.26 |
| 8 | $1,416.00 | 0.4982 | $705.45 |
| Total | $5,629.23 |
Required return of 9.1% is used for discount factor calculation.
jeff jeffy answered 2 years agoRelated Solutions
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