Question

1. If your required rate of return is 8% per year, what is the present value of the above cash flows? (Cash Flow 1)
2. If your required rate of return is 8% per year, what is the future value of the above cash flows? (Cash Flow 1)
3. Suppose that you are offered another investment that is identical, except the cash flows are reveresed. Compute the PV and FV, is this investment worth more or less than questions #1 and #2? (Cash Flow 1 compared to Cash Flow 3 PV and FV)
4. If you paid $150,000 for the original investment, what average annual rate of return would you earn? What return would you earn on the reversed cash flows? (Cash Flow 4 and Reversed Cash Flow 4)

Given the following set of cash flows:						Reversed
		Reversed		Cash Flow 4		Cash Flow 4
Period	Cash Flow 1	Cash Flow 3		$                                (150,000)		$                                (150,000)
1	$            40,000	$                                     5,000		$                                     40,000		$                                        5,000
2	$            35,000	$                                  10,000		$                                     35,000		$                                     10,000
3	$            30,000	$                                  15,000		$                                     30,000		$                                     15,000
4	$            25,000	$                                  20,000		$                                     25,000		$                                     20,000
5	$            20,000	$                                  25,000		$                                     20,000		$                                     25,000
6	$            15,000	$                                  30,000		$                                     15,000		$                                     30,000
7	$            10,000	$                                  35,000		$                                     10,000		$                                     35,000
8	$               5,000	$                                  40,000		$                                        5,000		$                                     40,000

Answer 1

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