A real estate investment has the following expected cash flows: Year. Cash Flows

Question

A real estate investment has the following expected cash flows:

Year.              Cash Flows.
1.                    $14,000
2.                      18,000
3.                      25,000
4.                      32,000

The discount rate is 3 percent. What is the investment's present value? Round your answer to 2 decimal places; for examplr 2345.25

What is the present value of a 8-year ordinary annuity payments of $514, evaluated at a 13 percent interest rate? Round your answer to 2 decimal places; for example 2345.25

Explanation / Answer

1.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=14000/1.03+18000/1.03^2+25000/1.03^3+32000/1.03^4

which is equal to

=$81869.09(Approx).

2.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$514[1-(1.13)^-8]/0.13

=$514*4.798770294

which is equal to

=$2466.57(Approx).

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