Calculate present discounted value of the annual cash flow, Business Economics

(present value) Suppose an entrepreneur considers to invest in a project. It needs a cash investment $I at year t = 0. If she/he invests, the project will generate an annual cash  flow $x from year t = 1 to year t = T. The annual interest rate is r (that is, if she/he deposits cash I in a bank, she/he will have I (1 + r) one year after).

(a) What is the present discounted value of the annual cash  flow at year t = 0?

(b) Suppose I = $100; x = $12; T = 10; and r = 5%: If you are the entrepreneur, will you invest in the project? Why?

Posted Date: 2/16/2013 12:26:45 AM | Location : United States







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