Question

CENGAGE | MINDTAP Windo-Cergage learn Chapter 4 Assignment a Search this course o X Now that you've thought about the decision rule that should be applied to your decision, apply it to the following security offered by your broker: Sing Associates, LLC, a large law firm in Denver, is building a new office complex. To pay for the construction, Ing Associates is iinga security that will pay the investor the lump sum of $38,600 in nine years. The current market price of the security is $16,429. Assuming that you can earn an annual return of 8.25% on your next most attractive investment, how much is the security worth to you today? $31,205 $18,912 $19,858 From strictly a financial perspective, should you invest in the ling security? No Yes Why or why not? Because the discounted value of the security's future cash flow is greater than the cost of the security Because the cost of the secunty is greater than the discounted value of the security's future cash flows. Grade New Save & Canin Core without

Answer 1

The discounted value of the future cash flow = 38,600/(1 + 0.0825)^9

The discounted value of the future cash flow = 18,911.94 ~ $18,912

Yes, you should invest in the Jing security.

Because the discounted value of the security's future cash flows is greater than the cost of the security, meaning the security has a positive NPV.

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