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11 November, 14:28

If $ 12 comma 000 is invested in a certain business at the start of the year, the investor will receive $ 3 comma 600 at the end of each of the next four years. What is the present value of this business opportunity if the interest rate is 3 % per year? A. $ 2 comma 210

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  1. 11 November, 16:08
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    PV of business opportunity = $1,381.55

    Explanation:

    The present value of the business opportunity is the difference between the present value of the streams cash inflow and the initial investment cost

    PV of streams of cash inflows:

    PV of cash flow = A * (1 - (1+r) ^ (-n)) / r

    A - 3,600, r - 3%, n - 4

    = 3,600 * (1 - (1.03^ (-4)) / 0.03

    =$13,381.55

    PV of the business opportunity

    = $13,381.55 - 12,000

    = $1,381.55
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