You are valuing an investment that will pay you $27,000 per year for the first 8
ID: 2744741 • Letter: Y
Question
You are valuing an investment that will pay you $27,000 per year for the first 8 years, $39,000 per year the next 7 years, and $52,000 per year the following 14 years (all payments are at the end of each year). A similar risk investment alternative is an account with a quoted annual interest rate of 15.00% with monthly compounding of interest. What is the value in today's dollars of the set of cash flows you have been offered? Question 21 options: $210,781.91 $194,962.76 $1,217,000.00 $249,355.00 $177,632.52
Explanation / Answer
0 $177,632.52
Answer: : $210,781.91
the value in today's dollars of the set of cash flows you have been offered = $ 210781.91
Working notes for the above answer is as under
We have been provided with the information that,
Investment that will pay you $27,000 per year for the first 8 years,
$39,000 per year the next 7 years,
$52,000 per year the following 14 years
Annual interest rate of 15.00%
Now we will calculate present value of the investment flow as under
Year
Cash Flow
Pv factor@15%
Prasent
Value
1
27000
0.869565217
23478.26
2
27000
0.756143667
20415.88
3
27000
0.657516232
17752.94
4
27000
0.571753246
15437.34
5
27000
0.497176735
13423.77
6
27000
0.432327596
11672.85
7
27000
0.37593704
10150.3
8
27000
0.326901774
8826.348
9
39000
0.284262412
11086.23
10
39000
0.247184706
9640.204
11
39000
0.214943223
8382.786
12
39000
0.18690715
7289.379
13
39000
0.162527957
6338.59
14
39000
0.141328658
5511.818
15
39000
0.122894485
4792.885
16
52000
0.10686477
5556.968
17
52000
0.092925887
4832.146
18
52000
0.080805119
4201.866
19
52000
0.070265321
3653.797
20
52000
0.061100279
3177.215
21
52000
0.053130677
2762.795
22
52000
0.046200589
2402.431
23
52000
0.040174425
2089.07
24
52000
0.034934283
1816.583
25
52000
0.030377637
1579.637
26
52000
0.026415337
1373.598
27
52000
0.022969858
1194.433
28
52000
0.01997379
1038.637
29
52000
0.017368513
903.1627
210781.91
the value in today's dollars of the set of cash flows you have been offered = $ 210781.91
Year
Cash Flow
Pv factor@15%
Prasent
Value
1
27000
0.869565217
23478.26
2
27000
0.756143667
20415.88
3
27000
0.657516232
17752.94
4
27000
0.571753246
15437.34
5
27000
0.497176735
13423.77
6
27000
0.432327596
11672.85
7
27000
0.37593704
10150.3
8
27000
0.326901774
8826.348
9
39000
0.284262412
11086.23
10
39000
0.247184706
9640.204
11
39000
0.214943223
8382.786
12
39000
0.18690715
7289.379
13
39000
0.162527957
6338.59
14
39000
0.141328658
5511.818
15
39000
0.122894485
4792.885
16
52000
0.10686477
5556.968
17
52000
0.092925887
4832.146
18
52000
0.080805119
4201.866
19
52000
0.070265321
3653.797
20
52000
0.061100279
3177.215
21
52000
0.053130677
2762.795
22
52000
0.046200589
2402.431
23
52000
0.040174425
2089.07
24
52000
0.034934283
1816.583
25
52000
0.030377637
1579.637
26
52000
0.026415337
1373.598
27
52000
0.022969858
1194.433
28
52000
0.01997379
1038.637
29
52000
0.017368513
903.1627
210781.91
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