e opportunity to receive 1000 per year for 3 years followed

e opportunity to receive $1000 per year for 3 years, followed by $3000 per year for 5 years, and in theP year. If your opportunity cost is 12%, what would you be willing to pay for this 5. You have th opportunity?

Solution

Present Value of future cash flows is calculated as follows: Year Cash flow Discount factor Present Value a b c=1.12^-a d=b*c 1 $            1,000                       0.8929 $            892.86 2                1,000                       0.7972                 797.19 3                1,000                       0.7118                 711.78 4                3,000                       0.6355             1,906.55 5                3,000                       0.5674             1,702.28 6                3,000                       0.5066             1,519.89 7                3,000                       0.4523             1,357.05 8                3,000                       0.4039             1,211.65 9              10,000                       0.3606             3,606.10 Total           13,705.36 Thus, Amount to be paid for this opportunity is $ 13,705.36