Investment X offers to pay you S 7.300 per year for 9 years, whereas Investment
ID: 2615203 • Letter: I
Question
Investment X offers to pay you S 7.300 per year for 9 years, whereas Investment Y omers to pay you S9.800 per year for 5 years If the discount rate is 5 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places. e.g. 32.16.) Investment X Investment Y if the discount rate is 23 percent, what is the present value of these cash fows? (Do not round intermediate calculations and round your answers to 2 decimal places, 0.32.10) Investment X Investment YExplanation / Answer
Calculation of Present value when discount rate is 5%: Investment X: Year Cashflow($)(a) PVF@5%(b) Present value(a*b) 1 7300 0.952 6952.38 2 7300 0.907 6621.32 3 7300 0.864 6306.01 4 7300 0.823 6005.73 5 7300 0.784 5719.74 6 7300 0.746 5447.37 7 7300 0.711 5187.97 8 7300 0.677 4940.93 9 7300 0.645 4705.65 Present value 51887.10 Present value of Investment X is $ 51887.10 Investment Y: Year Cashflow($)(a) PVF@5%(b) Present value(a*b) 1 9800 0.952 9333.33 2 9800 0.907 8888.89 3 9800 0.864 8465.61 4 9800 0.823 8062.48 5 9800 0.784 7678.56 Present value 42428.87 Present value of Investment Y is $ 42428.87 Calculation of Present value when discount rate is 23%: Investment X: Year Cashflow($)(a) PVF@23%(b) Present value(a*b) 1 7300 0.813 5934.96 2 7300 0.661 4825.17 3 7300 0.537 3922.90 4 7300 0.437 3189.35 5 7300 0.355 2592.97 6 7300 0.289 2108.10 7 7300 0.235 1713.91 8 7300 0.191 1393.42 9 7300 0.155 1132.86 Present value 26813.65 Present value of Investment X is $ 26813.65 Investment Y: Year Cashflow($)(a) PVF@23%(b) Present value(a*b) 1 9800 0.813 7967.48 2 9800 0.661 6477.63 3 9800 0.537 5266.36 4 9800 0.437 4281.60 5 9800 0.355 3480.97 Present value 27474.04 Present value of Investment Y is $ 27474.04
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