Question

Amy is considering investing in a project that is expected to return $75,000 five years from now. How much is she willing to pay for this investment if she wants a 10% return

Answer 1

$46,569.10

Step-by-step explanation:

The worth of the project today is the present value of the return expected in 5 years using the interest rate of return of 10% as the discount rate as computed below:

PV=FV/(1+r)^n

PV=today's worth of the project which is unknown

FV=future amount expected=$75,000

r=interest rate=10%

n=the time before the return is received=5 years

PV=$75,000/(1+10%)^5

PV=$75,000/(1.1)^5

PV=$75,000/1.61051

PV=$46,569.10