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? (PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.Round your answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

To find out how much Ashley should pay for the investment, we need to calculate the present value of the cash flows she expects to receive. We can use the Present Value of an Annuity formula:

PV = C x [(1 - (1 / (1 + r)^n)) / r]

where:
C = cash flow per year (which is $100,000 in this case)
r = rate of return (which is 12% or 0.12)
n = number of periods (which is 5 years)

Plugging in the values, we get:

PV = 100,000 x [(1 - (1 / (1 + 0.12)^5)) / 0.12]
PV = $360,478 (rounded to the nearest dollar)

Therefore, Ashley should pay a maximum of $360,478 for the investment to earn a 12% rate of return. The best choice is C.

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