Question

Travis is offered the following income
stream of payments: $10,000 in one year, $20,000 in two years, and
50,000 in **five** years. How much should
Travis be willing to pay for this income stream if his opportunity
cost of capital is 6.5%?

Answer #1

Value of Income Stream = PV of CFs from it.

Year |
CF |
PVF @6.5% |
Disc CF |

1 | $ 10,000.00 | 0.9390 | 9389.671 |

2 | $ 20,000.00 | 0.8817 | 17633.19 |

3 | $ - | 0.8278 | 0 |

4 | $ - | 0.7773 | 0 |

5 | $ 50,000.00 | 0.7299 | 36494.04 |

Value of Income
Stream |
63516.9 |

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