Once an investor calculates intrinsic value and expected future cash flows, how can he estimate how long it will take for him to recover his principal?

Accounting Dec 18, 2020

Expert Solution

The principal refers to the money spent on acquiring the asset. If you divide the principal by the monthly cash flow, your answer is the number of months it will take to break even. If you have the intrinsic value, you can subtract that amount from the principal and then divide to determine how long it would take if you plan on disposing the asset.

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