Homework Answers
| Present Value = Future value/ ((1+r)^t) | |||||||||||||||
| where r is the interest rate that is 6% and t is the time period in years. | |||||||||||||||
| Calculate the sum of present value of future cash flows and that is the amount you have to invest | |||||||||||||||
| to get a profitability of 6%. | |||||||||||||||
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 |
| future cash flow | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 | 60000 |
| present value | 56603.77 | 53399.79 | 50377.16 | 47525.62 | 44835.49 | 42297.63 | 39903.43 | 37644.74 | 35513.91 | 33503.69 | 31607.25 | 29818.16 | 28130.34 | 26538.06 | 25035.9 |
| Sum of present values of future cash flows | 582734.9 | ||||||||||||||
| The initial investment investment is $582734.9. | |||||||||||||||
| You should invest $582734.9 today. | |||||||||||||||
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