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    Present Value of an Investment Calculation

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    You are considering the purchase of an investment that would pay you $5,000 per year for years 1-5, $3,000 per year for years 6-8, and $2,000 per year for years 9 and 10. If you require a 14 percent rate of return, and the cash flows occur at the end of each year, then how much should you be willing to pay for this investment?

    a. $15,819.27
    b. $21,937.26
    c. $32,415.85
    d. $38,000.00
    e. $52,815.71

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    Solution Preview

    Year CF PV
    1 5000 4,385.96
    2 5000 3,847.34
    3 5000 3,374.86 ...

    Solution Summary

    This solution calculates how much someone should be willing to spend on an investment using the present value calculation.