Quant Question from Qbank.. investment, following, generate, promises, solution

optiix

can somewhy tell me why I cant calculate the same method for year 8-9 as with year 1-5? for example in year 8-9 why cant I go n=2, i/y=8 pmt = -2000 and cpt -> pv like i did from year 1-5?....i get the answer of 3566.53 for year 8 and 9 together but in the solution it calculated year 8 and 9 seperately and got 2080...why? If i did it this way i would get answer C but its answer B

thanks

A firm is evaluating an investment that promises to generate the following annual cash flows:

End of Year Cash Flows
1 $5,000
2 $5,000
3 $5,000
4 $5,000
5 $5,000
6 -0-
7 -0-
8 $2,000
9 $2,000

Given BBC uses an 8% discount rate, this investment should be valued at:

A) $19,963.

B) $22,043.

C) $23,529.





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Click for Answer and Explanation


PV(1 - 5): N = 5; I/Y = 8; PMT = -5,000; FV = 0; CPT ?

joemoran

Easiest way to do this is use the cash flow and NPV function on the calculator:

CF0 = $0
CF1 = $5000 F1 = 5
CF2 = 0 F2= 2
CF3 = $2000 F3 = 2

I = 8

Compute NPV = $22,044

draz

because your calculation is only discounting the payments for 2 periods instead of 9.... this is a REALLY REALLY basic calculation

burnsy562000

my bad, ive been reviewing qbank now for a few hrs my brain must not be working right. thanks for the post