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You are considering an investment with the following cash flows: Year 1: �5,000, Year 2: �7,000,...

You are considering an investment with the following cash flows: Year 1: �5,000, Year 2: �7,000, Year 3: �13,000. If you have a required return of 14%, How much would you be willing to pay for this investment?

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Answer #1
Amount willing to pay = Present value of future cash flow
Computation of present vlaue
i ii iii=i*ii
year cash flow PVIF @ 14% Present value
1 5000               0.8772 $   4,385.96
2 7000               0.7695 $   5,386.27
3 13000               0.6750 $   8,774.63
$ 18,546.87
Answer = $ 18,546.87
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