Question

Salvatore has the opportunity to invest in a scheme which will pay $ 7,500 at the...

Salvatore has the opportunity to invest in a scheme which will pay $ 7,500 at the end of each of the next 5 years. He must invest $ 15,000 at the start of the first year and an additional $ 15,000 at the end of the first year. What is the present value of this investment if the interest rate is 6​%?

A. -2,441.87

B. -8,781.98

C. 2,441.87

D. 8,781.98

If possible, please tell me how to do this using a financial calculator.

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Answer #1

If we use the present value formula which is = FV / (1+r)^n where r is 6% and n is 5 and FV would be 7,500 for each of the cash flow we can reach to the net present value. We also need to deduct the initial cash investment of $15,000 and discounted $15000 which was made at the end of first year

After calculation:

Year 0 = -15,000

Year 1 = -15,000+7,500 = -7,500

Year 2 = 7,500

Year 3 = 7,500

Year 4 = 7,500

Year 5 = 7,500

Interest rate = 6%

The correct answer would be Option C. 2441.87

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