Question

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

Answer 1

PV of business opportunity = $1,381.55

Step-by-step 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