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 fi rst year; this payout grows at the rate of 10 percent per year for 11 years.

If your discount rate is 15 percent, calculate the smallest X that 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.

Transcribed Image Text:

2345678 1 A Discount rate 2 Initial payment 3 NPV B 15% 129.2852 C -226.52