You are considering the purchase of an investment that would pay you $5000 per year for years 1-5, 3000 per year for years 6-8, and 2000 per year for years 9 and 10. If you require a 14% rate of return, and the cash flows occur at the end of each year, then how much should you be willing to pay for this investment? Step by step solution.
Answer and Explanation: 1
a. We should be willing to pay $21,937.26 for this investment
- Cash flow in year 1 - 5 = $5,000
- Cash flow in year 6 - 8 = $3,000
- cash flow in year 9 -...
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fromChapter 6 / Lesson 1
The value of investments changes over time, and this can be applied to multiple cash flows. Identify how to calculate both the present and future values applied specifically to cash flows.