Question

You are an investor evaluating a project which is going to take 8 years. The project will pay $500,000 at the beginning of each year starting a year from now. These payments will grow at 2% for the first two years, then 3.5% for the following two years and then stay consistent at 4% until the end of the project. In the last year of the project you will receive a lump sum of $1 million while also paying a lump sum of $200,000. If your expected retrun on this project is 12.5%, what is the PV of the project?

Answer 1

Answer:

Present Value of the project is $3,295,932

Explanation:

Present value is the discounted value of all the cash inflows and outflows of the project. It can be calculated using a required rate of return.

All the cash flows first grew at the specified growth rate each year and then discounted using required rate of return.

Working for present value of the project is attached please find it.