46
3.
You are offered an investment with the following conditions:
• The cost of the investment is 1,000.
• The investment pays out a sum X at the end of the first year; this payout grows at the
rate of 10% per year for 11 years.
If your discount rate is 15%, calculate the smallest X which would entice you to purchase
the asset. For example, as you can see in the following display, X = $100 is too small-the
NPV is negative:
Chapter 1
A
B
C
1 Discount rate
15%
2 Initial payment
129.2852
3 NPV
-226.52 <=B6+NPV(B1,B7:B17)
4
5
Year
Cash flow
6
0
-1,000.00
7
1
100.00
100
8
2
110.00 <=B7*1.1
9
3
121.00 <=B8*1.1
10
4
133.10
11
5
146.41
12
6
161.05
13
7
177.16
14
8
194.87
15
9
214.36
16
10
235.79
17
11
259.37