Using the tables in Exhibits 26-3 and 26-4 , determine the present value of the

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.)

$7,800 to be received 20 years from today.

$17,000 to be received annually for 10 years.

$10,800 to be received annually for five years, with an additional $12,000 salvage value expected at the end of the fifth year.

$29,000 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 Transaction a Transaction b Transaction c Transaction d EXHIBIT 26-3 Present Value of $1 Due in n Periods* Discount Rate Number of Periods Present Value of $1 Payable in n Periods 20% 833 907890 857826 .797.756.694 5% 6% 8% 10% 12% 15% 990 985 980 952 943 926 909 893 870 97 1 3 971.956 864840.794.751.712 .658 .579 961 951 942 933 .901 923 942.823 .792735 683 636.572 482 402 335 279 233 .194 .162 026 013 001 928.784 .747.681 915 621 564 567 507 452 404 424361 386 .322 .104 066 017 497 432 376 327 284 247 061 035 007 6 .746 .711 677 645 705 665 627 592 558 630 583 540 500 463 467 905 820 788 699 875 862 742 700 585 20 377.312 310 .247 158 .123 149 102 032 36 173 063 "The present value of $1 is computed by the formula p = periods until the future cash flow will occur. Amounts in this table have been rounded to three decimal places and are shown for a limited number of periods and discount rates. Many calculators are programmed to use this formula and can compute present values when the future amount is entered 1+ jn, where p ?s the present value of $1, ,is the discount rate, and n is the number of

Explanation / Answer

Present Value Transaction a $ 476 Transaction b $            85,323 Transaction c $            42,166 Transaction d $            87,616 Working: Transaction a Present Value = Future Value x Present value of 1 payable in 20 years = $         7,800 x 0.061 = $ 476 Transaction b Present Value = Annuity x Present value of annuity of $ 1 for 10 years = $       17,000 x 5.019 = $       85,323 Transaction c Present value of annual cash flow = Annual cash flows x Present value of annuity of 1 = $       10,800 x 3.352 = $       36,202 Present value of future cash flows = Future cash flows x Present value of 1 = $       12,000 x 0.497 = $         5,964 Total $       42,166 Transaction d Year Cash flows Discount factor Present Value 1 $       29,000 0.870 $ 25,230 2 $       29,000 0.756 $ 21,924 3 $       29,000 0.658 $ 19,082 4 $       20,000 0.572 $ 11,440 5 $       20,000 0.497 $    9,940 Total $ 87,616

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.