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You are presented with an investment opportunity that will give you the following stream of cash...

You are presented with an investment opportunity that will give you the following stream of cash flows: nothing for the next 5 years; at the following year, an amount of $3,000 per year until year 10; and then an amount of $8,000 per year until year 25. If your required rate of return (APR) is 12% compounded annually, what is the present value today of these cash flows?

Solutions

Expert Solution

Present value of cash flows = PV ( PV ( Cash flows from year 6-10) + PV (cash flows from year 11-25)

Rate of interest (rate) = 12%

PV of cash flows from year 6-10 = = $ 10,814.33

PV of cash flows from year 11-25 = = $ 54,486.92

Present value of cash flows= PV( 10,814.33 + 54,486.92) = PV ( 65301.24) @ 12% and 5 years

= = $ 37,053.68

jeff jeffy answered 2 years ago
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