Del Monty will receive the following payments at the end of the next three years

Question

Del Monty will receive the following payments at the end of the next three years: $8,000, $11,000, and $13,000. Then from the end of the fourth year through the end of the tenth year, he will receive an annuity of $14,000 per year.

At a discount rate of 12 percent, what is the present value of these future benefits? (Use a Financial calculator to arrive at the answer. Round the final answer to the nearest whole dollar.)

Del Monty will receive the following payments at the end of the next three years: $8,000, $11,000, and $13,000. Then from the end of the fourth year through the end of the tenth year, he will receive an annuity of $14,000 per year.

Explanation / Answer

As calculated above the present value of these future benefits is $70642.62

#PV Factor is calculated using 12%. For eg Year 1 = 1/1.12 , Year 2 = 1/(1.12)^2 and so on.

Year Cash flow($) PV Factor Present Value 1 8000 0.892857 7142.86 2 11000 0.797194 8769.13 3 13000 0.71178 9253.14 4 14000 0.635518 8897.25 5 14000 0.567427 7943.98 6 14000 0.506631 7092.84 7 14000 0.452349 6332.89 8 14000 0.403883 5654.37 9 14000 0.36061 5048.54 10 14000 0.321973 4507.63 Total 70642.62

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