Consider an investment that has cash flows of $500 the first year and $400 for the next four years. If your opportunity cost is 10%, you should be willing to pay $1,607.22 for this investment.

Question

Quizplus · Accepted Answer

The present value of the cash flows, discounted at 10%, is approximately $1,607.22. This is calculated by summing the present values of each cash flow: $500/(1.1)^1 + $400/(1.1)^2 + $400/(1.1)^3 + $400/(1.1)^4 + $400/(1.1)^5.

Consider an Investment That Has Cash Flows of $500 the First