Below is a table for the present value of $1 at compound interest. Income from N

Question

Below is a table for the present value of $1 at compound interest.

           Income from     Net cash
Year     operations       flow

1            $100,000        $180,0000

2            $40,000             120,000

3              40,000             100,000

4              10,000                90,000

5              10,000              120,000

Below is a table for the present value of an annuity of $1 at compound interest.

Year             6%            10%         12%

1                 .943           .909        .893

2                  1.833          1.736       1.690

3                  2.673           2.487        2.402

4                  3.465            3.170         3.037

5                  4.212             3.791          3.605  


Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the net present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%)?
a. $22,190

b. $21,259

c. $20,352

d. $3,969

Explanation / Answer

PV of CFs = CF1+CF2+CF3+CF4 ie PV of CFs = 7000( 1/(1+12%)^1 + 1/(1+12%)^2 + 1/(1+12%)^3+1/(1+12%)^4) iePV of CFs = 7000*3.037 = $21,259 .................Ans (b)

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.