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David has purchased an investment that he expects to produce an annual cash flow of​ $3,000 for five years. He requires an​ 8% rate of return compounded annually. What is the maximum amount that David
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David has purchased an investment that he expects to produce an annual cash flow of​ $3,000 for five years. He requires an​ 8% rate of return compounded annually. What is the maximum amount that David can pay and still earn the required rate of​ return?

User Mkingston
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4 votes

Answer:

Step-by-step explanation:

In order to find the highest amount david can pay or in other words the present value of the investment we would have to discount the cash flows

3000/1.08+3000/1.08^2+3000/1.08^3+3000/1.08^4+3000/1.08^5=11,978

User Ferbs
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