Question

You have just received a windfall from an investment you made in a friend's business. He will be paying you $10,000 at the end of this year, 20,000 at the end of the following year, 30,000 at the end of the year after that, 5,000 at the end of year 4, and 10,000 at the end of year 5. You require a 6% rate of return on your investment. Calculate the present value of this windfall. (Round to 3 decimals)

Answer 1

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

• Press the CF button.
• CF0= -$0.
• 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 rate of return of 6%.
• Press the down arrow and CPT buttons to get the net present value.

Present value of cash flows at 6% rate of return is $63,855.5196.