3:35 PM utm.instructure.com Consider the following investment that has these cas

Question

3:35 PM utm.instructure.com Consider the following investment that has these cash flows and net present value. Using the above information, what is the maximum that can be paid for this to be a desirable investment assuming a discount rate of 650%? That is, what is the breakeven cash flow for year 0? Year Cash Flow (16,775.00 $ 4,575.00 5,500.00 9.180.00 Discount Rate 6.50% 1.00000 093897 0.88166 0.82785 PV Factor ANCF NPV: $30.44 D Question 2 5 pts Using the table from the previous question, what is the minimum discounted cash flow in year 1 that you could accept and find the investment desirable (ie. what is the breakeven year 1 cash flow)? D Question 3 5 pts From the value you found in part 1a, what is the pre-discounted (raw) value?

Explanation / Answer

1. Break even cash flow in year 0 ( which means NPV should be zero at this value)

Given NPV is -30.44.

So Year0 cash flow = 16775-30.44 = 16744.56

Proof : PV of cash inflows = (4575x.93897+5500x.88166+9180x.82785)

= 4295.78775+4849.13+7599.663 = 16744.58

2. Break even cash flow in year 1 (Discounted value)

16775 = Year1 cash flow + 4849.13+7599.663

Year 1 cash flow = 4326.207

3. Pre- discounted value

= 4326.207/.93897 = 4607.3964

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