Question

17. A real estate investment has the following expected cash flows. $34.68 million in 2017 (t=0): $37.46 million in 2018 (t-1): S40.23 million in 2019(t=2): $43.00 million in 2020 (t=3) and $45.78 million in 2021 (-4). Assume that the interest rate is 7%, what is the investment's present value at year 02 (t=0)? a. S153.26 million b. $171.64 million c. S174.85 million d S185.28 million S193.44 million

Answer 1

The solution is as follows:

Year 't? Expected cash flows Discounting factor Discounted flows @ 7% cash flow ($) 34.68 34.68 37:46 1.0.9346 37:46X0.9346 = 35.0101 2 40.23 1 =0.8734 40.23X0.8734 (1.07) - 35.1369 3. 43 1 0.8163 43 x 0.8163 (1:07) - 35.1009 1 4 45.78 1 = 0.1629 45.78 X0.7629 (1.0709 - 34.9256 Discounted coch 174.8535 .. Present Value of Investment at Year o (ie t= 0) is $ 174 85 million Grounded off to two decimals). ... option C is correct. solve Please note that we can also this question using financial Calculator astelleri Present Value a

CASH 1% = 7. Cash Editora (Now Copy the data per period ) 34.68 37.46 40.23 4. 43 5. 45.78 .NP V = SOLVE 174.85. milion i. The investment's present value at year o liest:O) is $47418 571 (rounded 796 to tro nearest decimal places). is oftion C is correct. Note : Present Value = Future Value (1+1%)" where, I = Interest р. Numbex - Ч«КА :