Question

1. your friend has an investment opportunity for you. the prospective investment promises to pay out $4000 at the end of both years 1 and 2, then $0 in year 3 while there is a rebuild on key equipment, then $6000 at the end of both years 4 and 5. After the 5th payment, the project is complete and there is no salvage value or other cash flows. How much are you willing to pay for this investment, assuming that you require a return of 13% on this type of investment

Answer 1

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

value of investment = present value of cash flows

= 4000/1.13 + 4000/1.13^2 + 6000/1.13^4 + 6000/1.13^5

= 13608.88