Question

Suppose that a property can generate cash flows of $10,000 per year for eight years and can sell for $80,000 at the end of the investment period. Assuming a discount rate of 10%, what is the present value of this property (Assume end of period cash flows in your calculaTon)

Answer 1

Answer:

$90,669.85

Explanation:

Present value is the sum of discounted cash flows.

Present value can be calculated using a financial calculator

Cash flow each year year from year one to seven = $10,000 

Cash flow for year in year eighth = $10,000 + $80,000 =$90,000

Discount rate = 10%

Present value = $90,669.85

To find the PV using a financial calacutor:

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

I hope my answer helps you