Rich is evaluating an investment that will provide the following returns at the end of each...

Question

Question

Rich is evaluating an investment that will provide the following returns at the end of each of the following years:
-       Years 1-3:      $14,000
        Years 4-5:               $0
        Years 6-10:    $20,000
- believes he should earn an annual return of 8 percent on this investment. How much should he be willing to pay for this investment?

Answer 1

Answer #1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

=14,000/1.08+14,000/1.08^2+14,000/1.08^3+20,000/1.08^6+20,000/1.08^7+20,000/1.08^8+20,000/1.08^9+20,000/1.08^10

which is equal to

=$90426.79(Approx).

Add a comment

Answer 2

Similar Homework Help Questions

Ignatius is evaluating an investment that will provide the following returns at the end of each...

Ignatius is evaluating an investment that will provide the following returns at the end of each of the following years: year 1, $12,500; year 2, $9,000; year 3, $7,000; year 4, $5,000; year 5, $2,000; year 6, $0; and year 7, $15,000. Ignatius believes that he should earn an annual rate of 10 percent compounded annually on this investment. How much should he pay for this investment? If he expects to earn an annual return of 10 percent compounded monthly,...
8.) You are evaluating an investment that will provide the cash flows listed below at the...

8.) You are evaluating an investment that will provide the cash flows listed below at the end of each year. You believe that you should earn 11.50% percent compounded annually on this investment. How much would you be willing to pay for this investment? Year 1 2 3 4 5 CFs 200,000 225,000 275,000 325,000 3,500,000 I PV
6. You are offered a real estate investment with a schedule that shows the following returns...

6. You are offered a real estate investment with a schedule that shows the following returns at the end of each year. At the end of year 1, $15,000; year 2, $17,000; year 3, $14,000; year 4, $0; and year 5, $110,000. You want to earn 11 percent on such an investment. What would you be willing to pay for it? (10 points)

please answer all of the following questions 14. Assume that I will deposit $750 into an...

please answer all of the following questions 14. Assume that I will deposit $750 into an account exactly 10 years from today. How much will be in my account at the end of year 60 (i., 60 years from today), assuming that my account pays interest of 4.5% p.a.? 15. What is the future value at the end of year 15 of $10,000 deposited today into an account that pays interest of 4.5% p.a., but with daily compounding (assume 365...
Goldman Investments has offered you the following investment opportunity: • $21,000 at the end of each...

Goldman Investments has offered you the following investment opportunity: • $21,000 at the end of each year for the first 5 years. • $7,800 at the end of each year from year 6 through 10. How much would you be willing to pay for this investment if you require a 18% rate of return? a) 61,594.57 b) 90,072.39 c) 78,029.95 d) 69,517.62
Investment A is an equity (stock) investment in an American company. Returns on this Investment for...

Investment A is an equity (stock) investment in an American company. Returns on this Investment for the past 6 years are detailed in the table below, and Carlo expects the returns of the next 6 years to be the same as the last 6 years. Year Return 1 +80% 2 -50% 3 +70% 4 -50% 5 +40% 6 -5% With respect to Investment A, if the annual returns are each considered to be equally likely to occur, calculate the standard...

Paul Garnett has an investment opportunity that promises cash payments of $25,000 at the end of...

Paul Garnett has an investment opportunity that promises cash payments of $25,000 at the end of each year for eight years. How much should he be willing to invest in the opportunity if he wants to earn 10.2% APR compounded quarterly?
solve 3.16 only 4 percent return on his retirement investment, how much will retirement account at...

solve 3.16 only 4 percent return on his retirement investment, how much will retirement account at the end of 30 years? 3.15 Rockwell Machine is considering building a manufacturing plant that takes three years to complete. The plant is expected to generate a revenue of $500,000 per year at the end of each year of operation for 10 years (year 4 through 13). If Rockwell earns 8 percent on its investment, what is the maximum price that Rockwell is willing...
Your sister just deposited $9,000 into an investment account. She believes that she will earn an...

Your sister just deposited $9,000 into an investment account. She believes that she will earn an annual return of 9.5 percent for the next 8 years. You believe that you will only be able to earn an annual return of 8.6 percent over the same period. How much more must you deposit today in order to have the same amount as your sister in 8 years?

An investment offers $10,000 at the end of each year for ten years. a. If you...

An investment offers $10,000 at the end of each year for ten years. a. If you can earn 10 percent annually, what is this investment worth today? b. If you do not spend the annual payment but invest it at 10 percent, how much will you have after the ten years have lapsed?