2. An investment produces a cash flow of $420 in year 1, $137 in year 2,...
2. An investment produces a cash flow of $420 in year 1, $137 in year 2, and $797 in year 3. If the required rate of return is 15%, what price should you pay for the investment at time zero?
Homework Answers
Answer: $ 992.85
| Year | Cash Flows | PV of Cash Flows | Present Value |
| 1 | $ 420 | ( 1/1.15) = 0.8696 | $ 365.23 |
| 2 | 137 | (1 / 1.15) 2 = 0.7561 | 103.59 |
| 3 | 797 | ( 1 / 1.15 ) 3 = 0.6575 | 524.03 |
| $ 992.85 |
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