Using the tables in Exhibits 26-3 and 26-4, determine the present value of the f
ID: 2393727 • Letter: U
Question
Using the tables in Exhibits 26-3 and 26-4, determine the present value of the following cash flows, discounted at an annual rate of 15 percent. (Round "PV factors" to 3 decimal places. Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)
$8,500 to be received 20 years from today.
$13,000 to be received annually for 10 years.
$6,700 to be received annually for five years, with an additional $12,000 salvage value expected at the end of the fifth year.
$31,000 to be received annually for the first three years, followed by $20,000 received annually for the next two years (total of five years in which cash is received).
Present Value 519 65,247 Transaction a$ Transaction b$ Transaction c Transaction dExplanation / Answer
Present Value Transaction a $ 519 Transaction b $ 65,247 Transaction c $ 28,422 Transaction d $ 92,184 Working: Transaction a: Present Value = Future Value x Discount factor = 8500 x 0.061 = $ 519 Transaction b: Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.15)^-10)/0.15 i 15% = 5.019 n 10 Present Value of Annual cash flow = $ 13,000 x 5.019 = $ 65,247 Transaction c: Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.15)^-5)/0.15 i 15% = 3.352 n 5 Present value of 1 = (1+i)^-n Where, = (1+0.15)^-5 i 15% = 0.497 n 5 Present Value of annual cash flow = 6700 x 3.352 = 22,458 Present value of salvage cash flow = 12000 x 0.497 = 5,964 Total 28,422 Transaction d: Year Cash flow Discount factor Present Value 1 $ 31,000 0.870 $ 26,970 2 $ 31,000 0.756 $ 23,436 3 $ 31,000 0.658 $ 20,398 4 $ 20,000 0.572 $ 11,440 5 $ 20,000 0.497 $ 9,940 Total $ 92,184
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