Question

In: Finance

Consider the following investment that has these cash flows and net present value. Using the above...

Consider the following investment that has these cash flows and net present value. Using the above information, what is the break even cash flow for year 0, year 1, and what is the pre-discounted value?

Year 0 1 2 3
Chase flow -$16,775 $4575 $5500 $9180
Discount rate 6.50%
PV factor 1 .93897 .88166 .82785
NPV: -$30.44

Solutions

Expert Solution

Initial investment = $ 16,775

In order to get breakeven at year 1, discounted cash flow for year1 should be equal to initial investment amount.

Discounted cash flow for year 1 = $ 16,775

Pre-discounted value of cash flow in year 1 = Initial investment/PV factor for year 1

                                                        = $ 16,775/0.93897

                                                              = $ 17,865.3205108 or $ 17,865.32

jeff jeffy answered 2 years ago
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