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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

jeff jeffy answered 1 year ago
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