A real estate investment has the following expected cash flows: Year Cash Flows 1 $10,000 2 25,000 3 50,000 4 35,000 The initial cost is $85,000. The discount rate is 8.25 percent. What is the investment's present value

$10,479

Explanation:

Initial cost = C0 = -85000

Cash flow in year 1 = C1 = 10000

Cash flow in year 2 = C2 = 25000

Cash flow in year 3 = C3 = 50000

Cash flow in year 4 = C4 = 35000

Discount rate = r = 8.25%

Present value is calculated using the formula:

Present Value of the cash flows = PV = C0 + C1/(1+r)1 + C1/(1+r)2 + C1/(1+r)3 + C1/(1+r)4 = -85000 + 10000/(1+8.25%)1 + 25000/(1+8.25%)2 + 50000/(1+8.25%)3 + 35000/(1+8.25%)4 = -85000 + 9237.8752886836 + 21334.5849623178 + 39417.2470435433 + 25489.212868804 = 10478.9201633486 ~ $10479 (Rounded to nearest dollar)

Answer -> $10,479

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