9. What should Nicole be willing to pay today for a project with expected cash flows...

9. What should Nicole be willing to pay today for a project with expected cash flows of $300 from t=1 through t=5, $550 from t=6 through t=15, $700 from t=16 through t=20, and $1,000 at t=21? Assume a cost of capital (discount rate) of ten (10) percent.

Group of answer choices

A. $3951.39

B. $4130.50

C. $4006.02

D. $3915.48

E. $3851.80

Expert Solution

Cash Flows for 21 Years
Year	CF	PVF @10 %	Disc CF

1	$ 300.00	0.9091	$ 272.73
2	$ 300.00	0.8264	$ 247.93
3	$ 300.00	0.7513	$ 225.39
4	$ 300.00	0.6830	$ 204.90
5	$ 300.00	0.6209	$ 186.28
6	$ 550.00	0.5645	$ 310.46
7	$ 550.00	0.5132	$ 282.24
8	$ 550.00	0.4665	$ 256.58
9	$ 550.00	0.4241	$ 233.25
10	$ 550.00	0.3855	$ 212.05
11	$ 550.00	0.3505	$ 192.77
12	$ 550.00	0.3186	$ 175.25
13	$ 550.00	0.2897	$ 159.32
14	$ 550.00	0.2633	$ 144.83
15	$ 550.00	0.2394	$ 131.67
16	$ 700.00	0.2176	$ 152.34
17	$ 700.00	0.1978	$ 138.49
18	$ 700.00	0.1799	$ 125.90
19	$ 700.00	0.1635	$ 114.46
20	$ 700.00	0.1486	$ 104.05
21	$ 1,000.00	0.1351	$ 135.13
Present Value	$ 4,006.02

PVF = 1/ (1+r)^n

r = Interest rate i.e., 10%

n = Time gap i.e., 21 years

OPtion C has to be selected

Pls do rate, if the answer is correct and comment, if any further assistance is required.

jeff jeffy answered 2 years ago

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