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: $6,000, $9,000, and $11,000. Then, from the end of the 4th through the end of the 10th year, he will receive an annuity of $12,000 per year.

At a discount rate of 9 percent, what is the present value of all three future benefits? Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

At a discount rate of 9 percent, what is the present value of all three future benefits? Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation / Answer

the present value of all three future benefits=$6,000*Present value of first year @9%+$9,000*Present value of second year@9%+$11,000*Present value of third year@9%+$12,000*Present value of annual factors for 7 years(from 4th year to 10th year)@9%

Present value of first year@9%=1/1.09=0.9174

Present value of second year @9%=1/1.092=0.8417

Present value of third year @9%=1/1.093=0.7722

Present value of annual factors for 7 years(from 4th year to 10th year) @9%=1/1.094+1/1.095...........+1/1.0910=3.8864

the present value of all three future benefits=$6,000*0.9174+$9,000*0.8417+$11,000*0.7722+$12,000*3.8864

=$68,210.08

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