What is the maximum amount you would pay for an asset that generates an income of...
What is the maximum amount you would pay for an asset that
generates an income of $250,000 at the end of each of five years,
if the opportunity cost of using funds is 8 percent?
Instructions: Do not round intermediate
calculations. Round only your final calculation to the nearest
penny (two decimal places). Use a negative sign (-) where
appropriate.
$ _____________
Homework Answers
Answer
The maximum price is equal to the present value of the cash flows
PV=A*(P|A,i,n)
A=annual cashflow
i=8%
n=5 years
PV=250000*(P|A,8%,5)
=250000*3.992710037078
=998177.509
the maximum price you will pay is $998177.51
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