You are offered an investment with the following conditions: ? The cost of the investment is 1,000.

Question:

You are offered an investment with the following conditions:

? The cost of the investment is 1,000.

? The investment pays out a sum X at the end of the first year; this payout grows at the rate of 10% per year for 11 years.

If your discount rate is 15%, calculate the smallest X which would entice you to purchase the asset. For example, as you can see in the following display, X = $100 is too small?the NPV is negative:

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Financial Modeling

ISBN: 9780262027281

4th Edition

Authors: Simon Benninga

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Question Posted: Jan 29, 2020 01:21 PM

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You are offered an investment with the following conditions: ? The cost of the investment is 1,000.

Question:

A B 1 Discount rate 2 Initial payment 3 NPV 15% 129.2852 -226.52 <-- =B6+NPV(B1,B7:B17) 4 Year Cash flow -1,000.00 100.00 <-- 100 110.00 <-- =B7*1.1 121.00 <-- =B8*1.1 8 9. 10 11 3 4 133.10 146.41 161.05 12 13 7 177.16 14 8 194.87 15 9. 214.36 16 10 235.79 259.37 17 11

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Enter any value for X to begin with later we can use solver to find this value I entered 100 in cell ...View the full answer

Financial Modeling

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A B 1 Discount rate 2 Initial payment 3 NPV 15% 129.2852 -226.52 <-- =B6+NPV(B1,B7:B17) 4 Year Cash flow -1,000.00 100.00 <-- 100 110.00 <-- =B71.1 121.00 <-- =B81.1 8 9. 10 11 3 4 133.10 146.41 161.05 12 13 7 177.16 14 8 194.87 15 9. 214.36 16 10 235.79 259.37 17 11