Help my financial management 1. Your investment will pay you $10,000 at the end
ID: 2780932 • Letter: H
Question
Help my financial management 1. Your investment will pay you $10,000 at the end of one year, $14,000 at the end of the following year, and $24,000 at the end of the year after that (three years from today). The interest rate is 4%. (a) What is the present value? (4 points) (b) What will be the future value three years later (4 points)? (c)Assuming that the investment costs $35,000 today, what is the net present value (NPV) of the investment? 3. (11 points total) Your investment will pay you $10,000 at the end of one year, $14,000 at the end of the following year, and $24,000 at the end of the year after that (three years from today). The interest rate is 4%. (a) What is the present value? (4 points) (b) What will be the future value three years later (4 points)? (c) Assuming that the investment costs $35,000 today, what is the net present value (NPV) of the investment? (3 points)Explanation / Answer
(a)Present value = cash flow*present value interest factor (PVIF). PVIF = cash flow/(1+r)^n
where r = 4% and n is the year of cash flow.
Thus present value = $43,895.08
(b) Future value = 10,000*(1.04)^2 + 14,000*(1.04)^1 + 24,000
= $10,816 + 14,560 + 24,000
= $49,376
(c) NPV = sum of all present values:
Thus NPV = $8,895.08
Year Cash flow 1+r PVIF PV 1 10,000.00 1.04 0.9615 9,615.38 2 14,000.00 0.9246 12,943.79 3 24,000.00 0.8890 21,335.91 Total 43,895.08Related Questions
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