Question

# An investment is offered with the following conditions. An initial investment of \$ 100,000 and annual...

```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?```

(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 !!!!