You are considering an investment that has the following cash flows:?

Question

Need help with how to do this not just the answer

Answer 1

A) Calculate the PV's of the first four years of cash flows, discounting them at the 10% rate. Sum these.

B) The remainder of the problem is a Gordon constant growth model problem.

The value of a security with 3% growth and with an initial $20,000 "dividend" is:

Div(one year out) / k - g

or $20,000 (1.03) / (0.10-0.03)

Calculate this amount. Then take the PV of this, discounted back to the present (5 years) discounted at 10%.

This should give you your answer (without my calculating it!)

Good luck!