Question

9. A new business opportunity has presented itself. The business venture is expected to last for ten years. For the first four years, negative cash flows of $30,000 per year are expected at the end of each year. No net cash flow is expected at the end of year five. A positive cash flow of $35,000 is anticipated at the end of year six. A positive cash flow of $45,000 is expected at the end of years seven through ten. At the end of year ten, the business will be sold for $270,000. What is the present value of all of the future cash flows, assuming a 16.50% annual cost of capital

Answer 1

$39,379.86

Step-by-step explanation:

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow each year from year 1 to 4 = $-30,000

Cash flow in year 5 = 0

Cash flow in year 6 = $35,000

Cash flow each year from year 7 to 9 = $45,000

Cash flow in year 10 = $270,000 + $45,000 = $315,000

I = 16.50%

Present value = $39,379.86

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute