Homework Answers
Answer:
Explanation: Give the scenario, the cash flows of the problem is given as under:
Cash flow for Year 1 = $2520
Cash flow for Year 2 = $2520
Cash flow for Year 3 = $2520
Cash flow for Year 4 = $2520 + $3100 = $5620
Rate of interest = 5% = 0.05
The present value of the investment will be computed using the time value of money concept,
PV = 2520 / 1.051 + 2520 / 1.052 + 2520 / 1.053 + 5620 / 1.054
= 2400 + 2285.71 + 2176.87 + 4623.59
= $11486.17
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