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Assume that you are considering purchasing a commercial property today (which is the beginning of Year...

Assume that you are considering purchasing a commercial property today (which is the beginning of Year 1) for $100,000. You as an investor have a discount rate of 25%. The property is expected to generate cash flows in the amounts of $10,000 at the end of year 1. However, for each and every year after Year 1 cash flows are expected to grow by a factor of 3.6%. Assume the property owner plans on holding this property for 10 years. Compute the present value of the expected cash flows generated by this property,

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Answer #1
Year Cashflows Present value factor @ 25% Present value
1 10000.00 0.8000000 8000.00
2 10360.00 0.6400000 6630.40
3 10732.96 0.5120000 5495.28
4 11119.35 0.4096000 4554.48
5 11519.64 0.3276800 3774.76
6 11934.35 0.2621440 3128.52
7 12363.99 0.2097152 2592.92
8 12809.09 0.1677722 2149.01
9 13270.22 0.1342177 1781.10
10 13747.95 0.1073742 1476.17
Present value of expected cash flows 39582.63
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