Your company has the opportunity to enter a business that will generate cash-flows of 12,000€ per year, starting next year, and during 10 years. Calculate how much your company should invest today in order to obtain a yearly profitability of 5%. c) Your company has the opportunity to enter a business that will generate cash-flows of 12,000€ per year, starting in 5 years, and during 10 years. Calculate the future value of such delayed annuity under yearly profitability of 5%.. (Same as the previous exercise, but it will start generating cash-flows in 5 years instead of next year) Please show the workout and all the steps you follow to reach the final results. d) Your company has the opportunity to enter a business that will generate cash-flows of 12,000€ per year, starting in 5 years, and during 10 years. Calculate how much your company should invest today in order to obtain a profitability of 5%. Please show the workout and all the steps you follow to reach the final results
1). Amount required today if cash flow of 12,000 starts from next year and for 10 years
PV (if cash flow occurs at the end of next year): PMT = 12,000; N = 10; rate = 5%, solve for PV. PV1 (present value at the end of this year) = 92,660.82
PV0 (present value now) = 92,660.82/(1+5%) = 88,248.40 (amount to be invested now)
PV (if cash flow occurs at the beginning of next year) = 92,660.82 (as calculated above)
2). FV of delayed annuity (assuming end of the year cash flows): PMT = 12,000; N = 10; rate = 5%, solve for FV. FV = 150,934.71
3). PV of investment required to get delayed annuity payments shown in part (2):
Investment required now = FV at the end of 15 years/(1+5%)^15 = 150,934.71/(1+5%)^15 = 72,602.18
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