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 4th through the end of the 10th year, he will receive an annuity of $14,000 per year.

  

At a discount rate of 12 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 12 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

Discount Rate = 12%

PV Factor (1.12)n

PV of Cash inflow ($)

(Cash Inflow / PV Factor)

Year (n) Cash inflow ($)

Discount Rate = 12%

PV Factor (1.12)n

PV of Cash inflow ($)

(Cash Inflow / PV Factor)

1 8,000 1.12 7,142.8571428571428571428571428571 2 11,000 1.2544 8,769.1326530612244897959183673469 3 13,000 1.404928 9,253.1432215743440233236151603499 4 14,000 1.57351936 8,897.2530976676384839650145772595 5 14,000 1.7623416832 7,943.9759800603915035401915868388 6 14,000 1.973822685184 7,092.8356964824924138751710596775 7 14,000 2.21068140740608 6,332.8890147165110838171170175692 8 14,000 2.4759631762948096 5,654.3651917111706105509973371154 9 14,000 2.773078757450186752 5,048.5403497421166165633904795673 10 14,000 3.10584820834420916224 4,507.6253122697469790744557853279 Present Value of all future benefits (rounded to 2 decimal places). 70,642.62

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