Using the tables in Exhibits 26-3 and 26-4, determine the present value of the f
ID: 2393937 • 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.)
a. $8,500 to be received 20 years from today.
b. $13,000 to be received annually for 10 years.
c. $6,700 to be received annually for five years, with an additional $12,000 salvage value expected at the end of the fifth year.
d. $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).
Explanation / Answer
Answers
Year
PV factor at 15%
1
0.870
2
0.756
3
0.658
4
0.572
5
0.497
6
0.432
7
0.376
8
0.327
9
0.284
10
0.247
11
0.215
12
0.187
13
0.163
14
0.141
15
0.123
16
0.107
17
0.093
18
0.081
19
0.070
20
0.061
$ 8500 to be received in Year 20
PV = 8500 x PV factor of Year 20
= 8500 x 0.061
= $ 518.5 or $ 519
Sum total of PV factor from Year 1 to Year 10 = 5.019
PV of $ 13,000 to be received annually for 10 years = 13000 x 5.019
= $ 65,247
Sum total of PV factor from Year 1 to year 5 = 3.353
PV of 6700 to be received annually for 5 years = 6700 x 3.353 = $ 22,465
PV of $ 12000 received at the end of 5 year = 12000 x PV factor of 5th year = 12000 x 0.497 = $ 5,964
Total PV = 22465 + 5964 = $ 28,429
PV factor at 15%
Amount received
Present Value
[A]
[B]
[A x B]
Year 1 0.87
$ 3,000.00
$ 2,610.00
Year 2 0.756
$ 3,000.00
$ 2,268.00
Year 3 0.658
$ 3,000.00
$ 1,974.00
Year 4 0.572
$ 2,000.00
$ 1,144.00
Year 5 0.497
$ 2,000.00
$ 994.00
Total PV of the sums
$ 8,990.00
Total PV = $ 8990
Year
PV factor at 15%
1
0.870
2
0.756
3
0.658
4
0.572
5
0.497
6
0.432
7
0.376
8
0.327
9
0.284
10
0.247
11
0.215
12
0.187
13
0.163
14
0.141
15
0.123
16
0.107
17
0.093
18
0.081
19
0.070
20
0.061
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