You are considering a project that promises you cash flows of 554 USD each year for...
You are considering a project that promises you cash flows of 554 USD each year for 3 years. Based on the riskiness of the project, you require a 12 percent return. What is the maximum you should be willing to pay?
You are considering a project that promises you cash flows of 508 USD each year for 5 years. Based on the riskiness of the project, you require a 12 percent return. The cost to buy into the project is 3,459. What is the project NPV?
Homework Answers
a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=554[1-(1.12)^-3]/0.12
=554*2.401831268
=USD 1330.61(Approx).
b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=508[1-(1.12)^-5]/0.12
=508*3.604776202
=1831.23
NPV=Present value of inflows-Present value of outflows
=1831.23-3459
(USD 1627.77)(Negative)(Approx).
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