Question

A set of cash flows begins at $60,000 and increases at 10% per annum for the...

A set of cash flows begins at $60,000 and increases at 10% per annum for the next 12 years. If the interest rate is 10%, what is the present value of the set (to the nearest dollar)? A. $654,545 B. $655,545 C. $664,545 D. $654,645
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Answer #1

The correct option would be

  • A. $654545

The CF begins at $60000, increasing by 10% for 12 years. The interest rate is 10%. The table would be as below.

Year CF NPV
1 60000 54545.45
2 66000 54545.45
3 72600 54545.45
4 79860 54545.45
5 87846 54545.45
6 96630.6 54545.45
7 106293.7 54545.45
8 116923 54545.45
9 128615.3 54545.45
10 141476.9 54545.45
11 155624.5 54545.45
12 171187 54545.45

The NPV would be as or or , for each year n. The total NPV would hence be or or or or .

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