Question

if your opportunity cost is 8% per year, what is the value of an asset after 5 years that pays you $6,000 in one year, $8,000 in 3 years, and $10,000 in 5 years

Answer 1

The question is solved by calculating the net present value.

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= $0. Since there is no initial cash flow for this question.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the opportunity cost of 8%
• Press the down arrow and CPT buttons to get the net present value.  

The value of the asset after 5 years is $18,712.05.