Question

1) You are considering an investment that will pay you $12,000 the first year, $13,000 the second year, $17,000 the third year, $19,000 the fourth year, $23,000 the fifth year, and $28,000 the sixth year (all payments are at the end of each year). What is the maximum you would be willing to pay for this investment if your opportunity cost is 11%?

Solve this question assuming that payments will be received at the beginning of each year rather than the end of each year. Please solve using Excel

Answer 1

Solution :

In case the payments are received at the end of each year, the maximum that should be paid for this investment if your opportunity cost is 11% = $ 74,927.37

= $ 74,927 ( when rounded off to the nearest whole number )

In case the payments are received at the beginning of each year, the maximum that should be paid for this investment if your opportunity cost is 11% = $ 83,169.38

= $ 83,169 ( when rounded off to the nearest whole number )

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.