Question

Suppose that an income-producing property is expected to yield cash flows for the owner of $150,000 in each of the next five years, with cash flows being received at the end of each period. If the opportunity cost of investment is 8% annually and the property can be sold for $1,250,000 at the end of the fifth year, determine the value of the property today.

Answer 1

The answer is: The present value of the property is $1,449,636

Step-by-step explanation:

The easiest way to calculate the present value of an investment is to use an excel spreadsheet and the present value function =NPV(discount rate, series of cash flow). The first four cash flows should equal 150,000 and the fifth cash flow equals 1,400,000.

=NPV(8%,150000,150000,150000,150000,1400000) = $1,449,636