contestada

A project is expected to generate a cash flow of $3,000 in year 1, $1,000 in year 2, and $5000 in year 3. At an interest rate of 11%, what is the maximum amount that you could invest in the project at year 0?

Respuesta :

TomShelby

Answer:

maximum amount = 7,170.28‬

Explanation:

We will calculate using the present value of a lump sum

[tex]\frac{Principal}{(1 + rate)^{time} } = PV[/tex]  

For year 1

Principal 3,000.00

time   1.00

rate   0.11

[tex]\frac{3000}{(1 + 0.11)^{1} } = PV[/tex]  

PV   2,702.70

For year 2

Maturity   1,000.00

time   2.00

rate   0.11

[tex]\frac{1000}{(1 + 0.11)^{2} } = PV[/tex]  

PV   811.62

For year 3

Maturity   5,000.00

time   3.00

rate   0.11

[tex]\frac{5000}{(1 + 0.11)^{3} } = PV[/tex]  

PV   3,655.96

We add them to get the present value ofthe cash flow

3,655.96 + 811.62 + 2,702.70 = 7,170.28‬

This will be the maximun amount we can pay for the investment at our current rate. more than this sum will generate a negative net present value

Otras preguntas