1 answer

Please show work! 2. You are considering investing in a real estate project. Your one ownership...

Question:

2. You are considering investing in a real estate project. Your one ownership unit would cost $30,000. The project is expecte

Please show work!

2. You are considering investing in a real estate project. Your one ownership unit would cost $30,000. The project is expected to generate annual cash flows for you of: $4,500 in year 1, $5,000 in years 2-5, $8,000 in year 6 and $19,000 in year 7. With a discount rate of 8.0%, what is the net present value (NPV) of this investment? Should you invest in this deal? Why or why not?

Answers

NPV = sum of present values of cash flows

present value of each cash flow = cash flow / (1 + discount rate)n

where n = number of years after which the cash flow occurs

NPV = $5,628

Yes, you should invest in this deal because the NPV is positive

A B C Cash PV of 1 Year Flow Cash Flow 0 $(30,000) $(30,000) 1 $ 4,500 $ 4,167 2 $5,000 $ 4,287 3 $ 5,000 $ 3,969 4 $ 5,000 $

.

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