Answer:
$37,680.95
Explanation:
The maximum i would be willing to pay is the present value of the cash flows
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
Cash flow in year 1 = $12,500
Cash flow in year 2 = $10,000
Cash flow in year 3 = $7,500
Cash flow in year 4 = $5,000
Cash flow in year 5 = $2,500
Cash flow in year 6 = 0
Cash flow in year 7 $12,500
I = 9%
PV = $37,680.95
To find 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
