Determine the present value of $150,000 to be received at the end of each of fou

Question

Determine the present value of $150,000 to be received at the end of each of four years, using an interest rate of 7%, compounded annually, as follows:

a. By successive computations, using the present value table in Exhibit 4 shown below. Round to the nearest dollar.

First year $
Second Year $
Third Year $
Fourth Year $
Total present value $

b. By using the present value table in Exhibit 5 shown below. Round to the nearest whole dollar.
$_______________

c. Why is the present value of the four $150,000 cash receipts less than the $600,000 to be received in the future?

Explanation / Answer

a. First year = 150000x.9346= $140190 Second Year = 150000x.8734= $131010 Third Year = 150000x.8163= $122445 Fourth Year = 150000x.7629= $114435 Total present value $508080 b. By using the present value table in Exhibit 5 shown below. Round to the nearest whole dollar. =150000x3.3872= $508080 c. Present value is today's value of a payment or a stream of payment amount due and payable at some specified future date, discounted by a compound interest rate or discount rate . Today's value of a stream of cash flows is worth less than the sum of the cash flows to be received or saved over time. Present value accounting is widely used in discounted cash flow analysis.

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