-Suppose that you are evaluating the following investment opportunity. At the end of the the next...

-Suppose that you are evaluating the following investment opportunity. At the end of the the next five years you estimate that you will receive the following cash flows, $700, $800, $600, $600, and $350. At the end of every year following year five you will receive a cash flow that is 5% larger than the prior cash flow. If the cost of capital is 8% how much should you be willing to invest in this opportunity?

Expert Solution

Statement showing Cash flows
Particulars	Time	PVF 8%	Amount	PV
Cash Flows	1.00	0.9259	700.00	648.15
Cash Flows	2.00	0.8573	800.00	685.87
Cash Flows	3.00	0.7938	600.00	476.30
Cash Flows	4.00	0.7350	600.00	441.02
Cash Flows	5.00	0.6806	350.00	238.20
Cash Flows = Value at end of year 5	5.00	0.6806	12,250.00	8,337.14
Present value of Cash Flows				10,826.68

Value at end of year 5 = 350*1.05/(8%-5%)
Value at end of year 5 = 367.50/(8%-5%)
Value at end of year 5 = 12,250

jeff jeffy answered 2 years ago

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