Your best friend is opening a vintage clothing store and wants you to invest. For only $45,000 today, she will offer you a perpetual stream of cash flows representing a dividend from the potential profits. Those cash flows to you will vary for the first three years; and thereafter will grow at 1.0% annually and in perpetuity. (Just for clarification, this means that, based on the estimated Year 3 cash dividend of $13,000, the Year 4 cash flow to you will be $13,130 and the Year 5 cash flow will be $13,261.) This small chart represents the first three years of the proposal:

Cash Flow:

year 0 = (45,000)

year 1 = 2,000

year 2 = 10,000

year 3 = 13,000

You are intrigued, but worried: failure in the retail industry is rampant. You decide that you will assign it a risk-adjusted discount rate of 25%.

What is the Net Present Value of all of your expected cash flows, including the (negative) up- front investment outflow and the perpetuity at the end of your forecast?

A. ($20,000)

B. ($7,935)

C. ($2,333)

D. $1,175

E. $6,391