Question

Suppose that an income producing property is expected to yield cash flows for the owner of $10,000 in each of the next five years, with cash flows being received at the end of each period. If the typical investor requires a 12% return annually in this market and the property can be sold for $100,000 at the end of the fifth year, estimate the market value of the property today using discounted cash flow analysis assuming there are no sale expenses. (Input your answer rounded to the nearest whole dollar and without the $ sign, e.g., 1000)

Answer 1

92,790

Step-by-step explanation:

We have to calculate the present value of the property:

• Nper = 5 (5 years x 1 payment per year)
• R = 12%
• Payment = $10,000
• Future value = $100,000
• PV = ?

The best ans easiest way to calculate the present value is to use an excel spreadsheet and the present value function =PV(rate,nper,payment,fv) =PV(12%,5,10000,100000) = $92,790.45