Question

Suppose a condo generates $19,000 in cash flow in the first year. If the cash flows grow at 2% per year, the interest rate is 8%, and the building will be torn down in 20 years (the building is worthless after 20 years), what is the present value of the condo's cash flow? Enter your response below (rounded to 2 decimal places). Number

Please show work!

Answer 1

Please find below the solution..

i	ii		iii	iv=ii*iii
year	Cash flow		PVIF @ 8%	present value
1	19,000.00		0.9259	17,592.59
2	19,380.00	=19000*102%	0.8573	16,615.23
3	19,767.60	=19380*102%	0.7938	15,692.16
4	20,162.95	=19767.60*102%	0.7350	14,820.37
5	20,566.21	…	0.6806	13,997.02
6	20,977.54		0.6302	13,219.41
7	21,397.09		0.5835	12,484.99
8	21,825.03		0.5403	11,791.38
9	22,261.53		0.5002	11,136.31
10	22,706.76		0.4632	10,517.62
11	23,160.89		0.4289	9,933.31
12	23,624.11		0.3971	9,381.46
13	24,096.59		0.3677	8,860.27
14	24,578.53		0.3405	8,368.03
15	25,070.10		0.3152	7,903.14
16	25,571.50		0.2919	7,464.08
17	26,082.93		0.2703	7,049.41
18	26,604.59		0.2502	6,657.77
19	27,136.68		0.2317	6,287.90
20	27,679.41		0.2145	5,938.57
present value				215,711.01
Therefore present value =			215,711.01