Question

An investment opportunity is available which will yield $1,200 per year for the next 4 years...

An investment opportunity is available which will yield $1,200 per year for the next 4 years and $750 per year for the following 3 years.

              If interest is 10% and the investment has no terminal salvage value, what is the present value of the investment?

Try using a given formula with steps

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Answer #1
Investment
Discount rate 0.1
Year 0 1 2 3 4 5 6 7
Cash flow stream 0 1200 1200 1200 1200 750 750 750
Discounting factor 1 1.1 1.21 1.331 1.4641 1.61051 1.771561 1.948717
Discounted cash flows project 0 1090.909 991.7355 901.5778 819.61615 465.691 423.3554 384.8686
NPV = Sum of discounted cash flows
NPV Investment = 5077.75
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
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