David has purchased an investment that he expects to produce an annual cash flow of $3,000 for five years. He requires an 8% rate of return compounded annually. What is the maximum amount that David can pay and still earn the required rate of return?

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the cash flows is $12,936. This is calculated using the formula PV = CF * (1 - (1 + r)^-n) / r, where CF is the annual cash flow, r is the required rate of return, and n is the number of years.

David Has Purchased an Investment That He Expects to Produce