A company of $20,000 is to be received 10 years hence, followed by a $40,000 pay

Question

A company of $20,000 is to be received 10 years hence, followed by a $40,000 payment 17 years from the present. If over this time span the annual inflation rate is 5% while the expected annual market rate is 9%, calculate the present equivalent these two payment using

Actual – dollar analysis :Answer = 17,692

Constant – dollar analysis: Answer = = 17,255

Hello. i am doing cost engineering course. And i have the above question. How can i solve it with PV. Kindly attach an excel if u use excel . .

Explanation / Answer

Actual dollar analysis:

Net Present Value = 20,000/1.09^10 + 40,000/1.09^17

= 8,448.2161 + 9,242.9271 = 17,691.1433

Constant Dollar Analysis

Nominal amount for year 10 = 20000*1.05^10 = 32,577.8925

Nominal amount for year 17 = 17,000*1.05^17 = 91,680.73271

Present Value = 32,577.8925/1.09^10 + 91,680.73271/1.09^17

= 13,761.2539 + 21,184.95816

= 34,946.21

You cannot solve this in excel using the PV function because PV returns the present value of a series of continuous payments over a period.

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