Astrid makes an investment with a zero net present value. She pays $750 today, and receives...
Astrid makes an investment with a zero net present value. She pays $750 today, and receives $475 one year from today, $225 two years from today, and _____ three years from today. There are no other cash flows, and her effective annual interest rate is 11%.
Homework Answers
| Project | |||
| Discount rate | 0.11 | ||
| Year | 0 | 1 | 2 |
| Cash flow stream | -750 | 475 | 225 |
| Discounting factor | 1 | 1.11 | 1.2321 |
| Discounted cash flows project | -750 | 427.9279 | 182.615 |
| NPV = Sum of discounted cash flows | |||
| NPV Project = | -139.46 | ||
| Where | |||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||
Year 3 CF = NPV*(1+rate)^3
=139.46*(1+0.11)^3
=
| 190.73 |
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