Question

10. Given the following cash flows, what is the max you should pay for the investment if you want 8% return on your money? ( 2 pts )

Time Period	Cash Flows
0 is a neg. 50,000	(50, 000)
Year 1	$24,000
Year 2	$27,000
Year 3	$80,000

Consider the following cash flows:

Time Period	Expected Cash Flows
1	$100
2	$400
3	$500
4	??CF??
5	$800
Total Present Value (at a 10% discount rate)= $1,771.99

Note that the present value of all five cash flows (including the “unknown” cash flow at the end of year 4) is $1,771.99. What is the value of the “unknown” cash flow at period 4? (Worth 2 points

Answer 1

Ans 10		i	ii	iii=i*ii
	Year	Cash Flows	PVIF@ 8%	present value
	1	24,000	0.9259	22,222
	2	27,000	0.8573	23,148
	3	80,000	0.7938	63,507
		Present value	108,877
	Maximum to pay for investment =	108,877
Ans 11
		i	ii	iii=i*ii
	Year	Cash Flows	PVIF@ 8%	present value
	1	100	0.9091	91
	2	400	0.8264	331
	3	500	0.7513	376
	4	-	0.6830	-
	5	800	0.6209	497
	Present value with out 4th year=	1,294
	Present value with 4th year=	1,771.99
	Difference =		478.11
	Therefore 4 th year cash flow =	700
	788.11/0.6830
	answer =			700