Question

Assume you purchase a property and you expect to earn the following annual cash flows: Year 1 <$50,000> Year 2 $100,000 Year 3 $105,000 Year 4 $110,250 Year 5 $115,762 Assuming a discount rate of 10%, what is the present value of these cash flows

Answer 1

$263,259.46

Step-by-step explanation:

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = -$50,000

Cash flow in year 2 = $100,000

Cash flow in year 3 = $105,000

Cash flow in year 4 = $110,250

Cash flow in year 5 = $115,762

I = 10%

PV = 263,259.46

To determine the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute