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

Question

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

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

Using the tables above, if an investment is made now for $17,700 that will generate a cash inflow of $5,900 a year for the next 4 years, what would be the net present value (rounded to the nearest dollar) of the investment, assuming an earnings rate of 10%?

Year 6% 10% 12% 1 0.943 0.909 0.893 2 0.890 0.826 0.797 3 0.840 0.751 0.712 4 0.792 0.683 0.636 5 0.747 0.621 0.567

Explanation / Answer

Solution:-

Net present value = Present value of cash flow - Initial investment

= 5,900 PVAF (10% , 4years) - 17,700

= (5,900 * 3.170) - 17,700

= 18,703 - 17,700

= $ 1,003

Please Rate or comment if you have any doubt regarding this solution.

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