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 (i.e. marginal revenue product) on machine A is expected to be R1 = $100,000 for year 1 and R2 = $50,000 for year 2. The present discounted value (PDV) of the net revenue flow from machine A to its owner is equal to _________. (NOTE: Write your answer in number format, with 2 decimal places of precision level; do not write your answer as a fraction. Add a leading zero and trailing zeros when needed. Use a period for the decimal separator and a comma to separate groups of thousands.) Show all steps.

Explanation / Answer

PDV = 100000(P/F, 10%, 1) + 50000(P/F, 10%, 2)

       = (100000 * 0.9091) + (50000 * 0.8264) = $132230

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