Question 1: If your required rate of return is 9% per year, what is the present value of the above cash flows? Future Value?
Question 2: Suppose that you are offered another investment that is identical, except that the cash flows are reversed, is this worth more, or less, than the original investment? Why?
Question 3: If you paid $50,000 for the original investment , what average annual rate of return would you earn? What return would you earn on the reversed cash flows?
Question 4: Assuming that your required return is 9%, would you be willing to purchase either of these investments?
| Period |
Cash Flow |
| 1 |
25,000 |
| 2 |
20,000 |
| 3 |
15,000 |
| 4 |
10,000 |
| 5 |
5,000 |