Time remaining:
##### Investment and FV/PV

account_circle Unassigned
schedule 1 Day
account_balance_wallet \$5

Pretend you are in a business meeting with you team.  Your group received a phone proposal to invest in a new business.  The call informs you that it will take a \$70,000 down payment and the investelemt will return \$10,000 a year for the next 10 years.  He tells you that you that the investment will return 14 percent.  If current interest rates are 8 percent, what is the present value of this investment?  How did the call get 14 percent?

Oct 17th, 2017

The net present value of the investment is (\$2,684.43). The investment is not a value adding proposition, by making the investment you would expect to lose \$2,684.43. The 14% was obtained by dividing the return of \$10,000 by the investment of \$70,000. This is faulty analysis, since it ignores the the actual cash out of \$70k and the 10 payments of \$10k.

Apr 10th, 2015

...
Oct 17th, 2017
...
Oct 17th, 2017
Oct 18th, 2017
check_circle