Ashley projects that she can get $100,000 cash per year for 5 years on a real estate investment project. If Ashley wants to earn a rate of return of 12%, what is the maximum that she should pay for the investment? (rounded to the nearest dollar)

Question

Quizplus · Accepted Answer

The maximum amount Ashley should pay is the present value of the cash flows. Using the formula for the present value of an annuity, PV = C * [(1 - (1 + r)^-n) / r], where C = $100,000, r = 0.12, and n = 5, the calculation gives approximately $360,478.

Ashley Projects That She Can Get $100,000 Cash Per Year