Investment X offers to pay you S6, 100 per year for 9 years, whereas Investment

Question

Investment X offers to pay you S6, 100 per year for 9 years, whereas Investment Y offers to If the discount rate is 7 percent, what is the present value of these cash flows ? (Do not round intermediate calculations and round your answers to 2 decimal Present Value Investment X Investment Y S l If the discount rate is 23 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.) Present Value Investment X Investment Y References Worksheet Problem 5-2 Present Value and Multiple Cash O Type here to search

Explanation / Answer

When discount rate is 7%

Investment X:

Present value of annuity = Annuity * [ 1 - 1 / ( 1 + R)n] / R

Present value = 6100 * [ 1 - 1 / ( 1 + 0.07)9] / 0.07

Present value = 6100 * 6.515232

Present value = $39,742.92

Investment Y:

Present value of annuity = Annuity * [ 1 - 1 / ( 1 + R)n] / R

Present value = 8400 * [ 1 - 1 / ( 1 + 0.07)5] / 0.07

Present value = 8400 * 4.100197

Present value = $34,441.66

When discount rate is 23%:

Investment X:

Present value of annuity = Annuity * [ 1 - 1 / ( 1 + R)n] / R

Present value = 6100 * [ 1 - 1 / ( 1 + 0.23)9] / 0.23

Present value = 6100 * 3.673102

Present value = $22,405.92

Investment Y:

Present value of annuity = Annuity * [ 1 - 1 / ( 1 + R)n] / R

Present value = 8400 * [ 1 - 1 / ( 1 + 0.23)5] / 0.23

Present value = 8400 * 2.803473

Present value = $23,549.17

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