\"Exercise 16-2 Determining the present value of a lump-sum future cash receipt

Question

"Exercise 16-2 Determining the present value of a lump-sum future cash receipt Stan Sweeney turned 20 years old today. His grandfather established a trust fund that will pay Mr. Sweeney $80,000 on his next birthday. However, Stan needs money today to start his college education. His father is willing to help and has agreed to give Stan the present value of the future cash inflow, assuming a 10 percent rate of return. Required a. Use a present value table to determine the amount of cash that Stan Sweeney

Explanation / Answer

A. Use a present value table to determine the amount of cash that Stan Sweeney’s father should give him. Using the Present Value of $1 table, The factor for 1 year at 10% rate of return is 0.90909 The PV of $80,000 after year 1 is PV = 80,000 * PV factor PV = 80000 * 0.90909 PV = $72,727.20 Based of The Present Value, Stan Sweeney's father should give him $72,727.20

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