A property is projected to generate cash flows of $10,000, $12,000, $15,000, and $17,000 at the end of year 1, 2, 3, and 4, respectively. The expected sale price for the property at the end of year 4 is $100,000. What is the present worth of the property assuming a required rate of return of 13%?

Question

Morgan Rhodes

Business

15 March, 04:32

A property is projected to generate cash flows of $10,000, $12,000, $15,000, and $17,000 at the end of year 1, 2, 3, and 4, respectively. The expected sale price for the property at the end of year 4 is $100,000. What is the present worth of the property assuming a required rate of return of 13%?

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Answers (1)

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Titus Cochran · Answer 1

Total present value = $100,401.36

Explanation:

Giving the following information:

A property is projected to generate cash flows of $10,000, $12,000, $15,000, and $17,000 at the end of year 1, 2, 3, and 4, respectively. The expected sale price for the property at the end of year 4 is $100,000.

We need to apply the following formula to each cash flow:

PV = FV / (1+i) ^n

Cf1 = 10,000/1.13 = 8,849.56

Cf2 = 12,000/1.13^2 = 9,397.76

Cf3 = 15,000/1.13^3 = 10,395.75

Cf4 = (17,000 + 100,000) / 1.13^4 = 71,758.29

Total = $100,401.36