Question

SeP Home Book Store Instructors Independent Authors About n investor is consildering the tollowing that port he wil recove 1100 years of S18,400.00 pei year rhsdscortne ontn meterte T00%, what i, he vaut dte opportunity. He will put capital into a sta up company today He will nof receive any cash ous tom the investment untl end of the Sth year A Answer Format: Currency: Round to: 2 decimal places Enter Answer Here. Prew Pobien Al Problem ext Problem

Answer 1

Given CF1 to CF5 = 0
CF6 to CF16 = P = 18400 (11 years)

NPV is the present value of all cash flows

Hence, NPV = CF6/(1+r)⁶ + CF7/(1+r)⁷ + .... + CF16/(1+r)¹⁶

given r = 0.17

=> NPV of an ordinary annuity = P[1-(1+r)^-n]/r

Hence, NPV of this cash flow = [18400(1 - 1.17^-11)/0.17 ] / (1.17)⁵

=> NPV = $40589.33

We have divided by (1.17)⁵ since we have calculated the value of annuity at Period 5 and then discounted it to current period