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You are considering the purchase of an investment that would pay you $66 per year for...

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You are considering the purchase of an investment that would payyou $66 per year for Years 1-4, $45 per year for Years 5-7, and $98per year for Years 8-10. If you require a 14 percent rate ofreturn, and the cash flows occur at the end of each year, then howmuch should you be willing to pay for this investment? Show youranswer to the nearest $.01. Do not use the $ sign in youranswer.

Answer & Explanation Solved by verified expert
4.0 Ratings (774 Votes)

Ans 345.09

Year Project Cash Flows (i) DF@ 14% DF@ 14% (ii) PV of Project A ( (i) * (ii) )
1 66 1/((1+14%)^1) 0.877                             57.89
2 66 1/((1+14%)^2) 0.769                             50.78
3 66 1/((1+14%)^3) 0.675                             44.55
4 66 1/((1+14%)^4) 0.592                             39.08
5 45 1/((1+14%)^5) 0.519                             23.37
6 45 1/((1+14%)^6) 0.456                             20.50
7 45 1/((1+14%)^7) 0.400                             17.98
8 98 1/((1+14%)^8) 0.351                             34.35
9 98 1/((1+14%)^9) 0.308                             30.14
10 98 1/((1+14%)^10) 0.270                             26.43
PV                           345.09

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Transcribed Image Text

You are considering the purchase of an investment that would payyou $66 per year for Years 1-4, $45 per year for Years 5-7, and $98per year for Years 8-10. If you require a 14 percent rate ofreturn, and the cash flows occur at the end of each year, then howmuch should you be willing to pay for this investment? Show youranswer to the nearest $.01. Do not use the $ sign in youranswer.

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