Question

An investment is offered with the following conditions. An initial investment of $ 100,000 and annual payments of $ 12,000 from the third year at a rate of 10% APR for 8 years. After 8 years, annual payments of $ 7,500 are made at a rate of 11.5% APR for 5 years and the accumulated of the past 8 years is maintained for those 5 years at 11.5% APR. Calculate the following: 1) The present value of the investment 2) The future value of the investment 3) The profit obtained 4) The investor is willing to sell the investment with a 40% discount from the projected profit. How much is the price you should ask for?

Answer #1

**Answer :**

**(1). First calculate the 5 payments at the end of 10
years**

Discount rate |
10.0000% |
- |
- |

Cash flows |
Year |
Discounted CF =
Cash flows /(1+rate)^year |
Cummulative cash
flow |

(100,000.000) |
0 |
(100,000.00) |
(100,000.00) |

- |
1 |
- |
(100,000.00) |

- |
2 |
- |
(100,000.000) |

12,000.000 |
3 |
9,015.78 |
(90,948.222) |

12,000.000 |
4 |
8,196.16 |
(82,788.061) |

12,000.000 |
5 |
7,451.06 |
(75,337.01) |

12,000.000 |
6 |
6,773.69 |
(68,563.318) |

12,000.000 |
7 |
6,157.90 |
(62,405.42) |

12,000.000 |
8 |
5,598.09 |
(56,807.33) |

12,000.000 |
9 |
5,089.17 |
(51,718.16) |

12,000.000 |
10 |
4,626.52 |
(47,091.64) |

27,374.084 |
10 |
10,553.89 |
(36,537.75) |

**Present value = - 36,537.75**

**(2). Future value after 15 years = -
36,537.75*1.10*1.115^5 = 163,321.35**

**(3) Gain = - 36,537.75**

**(4). Price = 100,000 + 40%* - 36,537.75 =
85,384.90**

**Kindly Up-vote Thank You !!!!**

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