Question

Consider the sale of some property where the seller agrees to accept a cash flow stream rather than a one-time up-front payment. What was the seller's selling price if the cash flow stream accepted, at a required return of 6% was as follows:

	$1,000	$2,000	$2,000	$2,000
0	1	2	3	4

Seller's Selling Price?_______

Answer 1

We can find the answer by finding the present value of cash flow steam at discounted at 6%.

Where,

PV_CF = Present value of cash flow
CF_n = Cash flow at time n
i = required return
n = number of periods

Substituting the values, we get:

Therefore, Seller's Selling price is $5,986.81