Assume r = 0.1 is the present real interest rate and this rate is expected to pr

Question

Assume r = 0.1 is the present real interest rate and this rate is expected to prevail for the next 2 years. The monetary return (that is the marginal revenue product) on machine A is expected to be R1 = $100,000 for year 1 and R2 = $50,000 for year 2.
What is the present discounted value (PDV) of the net revenue flow from machine A to its owners?
Assume r = 0.1 is the present real interest rate and this rate is expected to prevail for the next 2 years. The monetary return (that is the marginal revenue product) on machine A is expected to be R1 = $100,000 for year 1 and R2 = $50,000 for year 2.
What is the present discounted value (PDV) of the net revenue flow from machine A to its owners?
Assume r = 0.1 is the present real interest rate and this rate is expected to prevail for the next 2 years. The monetary return (that is the marginal revenue product) on machine A is expected to be R1 = $100,000 for year 1 and R2 = $50,000 for year 2.
What is the present discounted value (PDV) of the net revenue flow from machine A to its owners?

Explanation / Answer

Present value = Future value/(1+r)^n , where r is interest rate and n is no. of years.

Thus,

present discounted value (PDV) of the net revenue flow =  R1/1+r1 + R2/(1+r2)^2

= $100,000/1+0.01 + $50,000/(1+0.01)^2

= 99009.90 + 49014.80

= 148024.70

If you don't understand anything , then comment , I will revert back on the same. :)

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