Question

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?

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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