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"16. An investment promises to pay $6,000 at the end of each year for the next five years and $4,000 at the end of each year for years 6 through 10. a. If you require a 12 percent rate of return on an investment of this sort, what is the maximum amount you would pay for this investment?"

Respuesta :

Zviko

Answer:

$33,387.70

Explanation:

A summary of the cash flows for this investment  is :

Year 1        $6,000

Year 2        $6,000

Year 3        $6,000

Year 4        $6,000

Year 5        $6,000

Year 6        $4,000

Year 7        $4,000

Year 8        $4,000

Year 9        $4,000

Year 10       $4,000

So, clear these are uneven cash flows thus use your CFj function on your financial calculator to find the Net Present Value at the rate of 12% as below:

CFj        $6,000

CFj       $6,000

CFj        $6,000

CFj       $6,000

CFj       $6,000

CFj        $4,000

CFj       $4,000

CFj        $4,000

CFj        $4,000

CFj       $4,000

I/YR = 12 %

SHIFT NPV = $33,387.70

Thus, the maximum amount you would pay for this investment is  $33,387.70.

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