Question 3 : Please calculation the Present value and cash payment reduction. In

Question

Question 3 : Please calculation the Present value and cash payment reduction. Instruction: Please show the clear calculation and interpretation.

Homework question 3: Company A sells machinery to Company B. Company B agrees to pay Company A $200,000 at the end of each of the next 5 years, with discount rate 7%. Instruction :

[1] provide a clear calculation for each year cash payment reduction for 6 years. (Do not roundof any amount. need 2 decimal after .)

[2] please provide an explanation toward your calculation

Explanation / Answer

Present value = 200000 * Cumulative Present value factors for 5 Years @ 7 %

= 200000 * 4.100

   = $ 820000

Conclusion:   Present value of Future Payment of $ 200,000 at the end of each of the next 5 years with the discount rate of 7% will be $ 820000.

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