Question

A corporate financial analyst must calculate the value of an asset which produces year-end annual cash flows of $0 the first year, $2,000 the second year, $3,000 the third year, and $2,500 the fourth year. Assuming a discount rate of 15 percent, what is the value of this asset?.

Answer 1

Based on the year-end annual cash flows and the discount rate, the value of the asset is $4,914.22.

What is the asset's value?

The asset value can be found by summing the present values of the cash flows:

= 0/(1 + 15%) + (2,000 / (1 + 15%)² + (3,000 / (1 + 15%)³) + (2,500 / (1 + 15%)⁴)

= 1,512.2873 + 1,972.548697 + 1,429.38311

= $4,914.22

In conclusion, the asset value is $4,914.22.

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