Description
Question:
A project will yield cash flows of $60,000 in each of the next 5 years, with the first payment occurring in 1 year. The interest rate is 17%. How much would you be willing to pay to invest in this project (i.e, what is the PV of the cash flows)?
Answer:
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=60,000/1.17+60,000/1.17^2+……+60,000/1.17^5
=60,000[1/1.17+1/1.17^2+………+1/1.17^5]
=$60000*3.199346163
which is equal to
=$191,960.77(Approx)
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