Question

Flaherty is considering an investment that, if paid for immediately, is expected to return $160,000 seven years from now. If Flaherty demands a 8% return, how much is she willing to pay for this investment

Answer 1

Answer:

$93,358.46

Explanation:

The amount he would be willing to pay is the present value of the investment.

Present value is the sum of discounted cash flows.

PV = FV ( 1 + r) ^-n

PV = present value

r = interest rate

n = number of years

FV = future value

$160,000 (1.08)^-7 = $93,358.46