Question

given a cost of 70,000 now year 0 15,000 in year 10 an annual cost of 2000 and an annual revenue of 15,000 over 20 years n what is the maximum that you'd be willing to pay for capital asset if you expected a 6% return on your investment

Answer 1

The maximium cost I would be willing to purchase the asset is 26.033,84‬ above this price the investment will not yield the 6% return.

Step-by-step explanation:

We calcualte the present value of all cash flows:

annual cashflow:

15,000 revenue - 2,000 expenses = 3,000

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

C 3,000.00

time 20

rate 0.06

`3000 * (1-(1+0.06)^(-20) )/(0.06) = PV\\`

PV $34,409.7637

Pv of the 10th year investment:

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity $15,000.0000

time 10.00

rate 0.06000

`(15000)/((1 + 0.06)^(10) ) = PV`

PV 8,375.9217

present value of the cashflow

34,409.7637 - 8,375.92 = 26.033,84‬