Question
In: Finance
"If $500000 is invested in a certain business at the start of the year, the investor...
"If $500000 is invested in a certain business at the start of the year, the investor will receive $130000 at the end of each of the next 5 years. What is the present value of this business opportunity if the interest rate is 5% per year? Note: Express your answers in strictly numerical terms. For example, if the answer is $500, write enter 500 as an answer."
Solutions
Expert Solution
| present value of this business opportunity | 62,831.97 | |||
| Statement showing Cash flows | ||||
| Particulars | Time | PVf 5% | Amount | PV |
| Cash Outflows | - | 1.00 | (500,000.00) | (500,000.00) |
| PV of Cash outflows = PVCO | (500,000.00) | |||
| Cash inflows | 1.00 | 0.9524 | 130,000.00 | 123,809.52 |
| Cash inflows | 2.00 | 0.9070 | 130,000.00 | 117,913.83 |
| Cash inflows | 3.00 | 0.8638 | 130,000.00 | 112,298.89 |
| Cash inflows | 4.00 | 0.8227 | 130,000.00 | 106,951.32 |
| Cash inflows | 5.00 | 0.7835 | 130,000.00 | 101,858.40 |
| PV of Cash Inflows =PVCI | 562,831.97 | |||
| NPV= PVCI - PVCO | 62,831.97 |
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