You expect annual cash flows from a certain property as follows: 

Year 1  $20,000 

Year 2  $22,000 

Year 3  $30,000 

Year 4  $31,000 

Year 5  $40,000 

In addition, you expect that you can sell the property at the end of the 5th year for 12 times its expected cash flow that year. If the opportunity cost of capital is 8% per year, then what is the net present value (NPV) of a deal in which the investor has to pay $300,000 for the property (at the end of Year 0, one year prior to the first cash flow)?

Answer rating: 100% (QA)

To calculate the net present value NPV of the deal we need to discount the expected cash flows and t... View the full answer