Question

You are valuing an investment that will pay you $14,000 the first year, $16,000 the second year, $19,000 the third year, $21,000 the fourth year, $25,000 the fifth year, and $31,000 the sixth year (all payments are at the end of each year). What is the value of the investment to you now if the appropriate annual discount rate is 10.00%

Answer 1

The question is solved by computing 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.
• 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 discount rate of 10%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 10% the discount is $87,590.40.

Therefore, the value of the investment now is $87,590.40.

In case of any query, kindly comment on the solution.