Smolinski Company is considering an investment which will return a lump sum of $
ID: 2477587 • Letter: S
Question
Smolinski Company is considering an investment which will return a lump sum of $500,000, 4 years from now. What amount should Smokinski Company pay for this investment to earn a 12% return? Periods 12% PV of 1
1............................................ .89286
2............................................ .79719
3............................................ .71178
4............................................ .63552
5............................................ .56743
6............................................ .50663
7............................................ .45235
8............................................ .40388
9............................................ .36061
10.......................................... .32197
Question options: (A.) $226,175 (B.) $317,760 (C.) $446,430 (D.)$355,890
Present Value is based on:
the length of time until the amount is received.
the interest rate
the dollar amount to be received
all of these answers
a.)the length of time until the amount is received.
b.)the interest rate
c.)the dollar amount to be received
d.)all of these answers
Explanation / Answer
Present value to be invested now to get the return of 12 % and lumpsum $500,000
Present value = 500,000 * present value 4th year factor of 12%
= 500,000 * .63552
= $317,760
So the correct answer is B
2. Present value is calculated based on the time factor , interest rate as well as the Dollar amount to be received
Pv = (factor i= ? t= ?) * dollar amount
So the correct answer is D
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