16 Investment X offers to pay you $4,800 per year for 9 years, whereas Investmen

Question

16 Investment X offers to pay you $4,800 per year for 9 years, whereas Investment Y offers to pay you $7100 per year for 5 years. If the discount rate is 6 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g. 32.16.) points eBook Print References Present value Investment X Investment y If the discount rate is 16 percent. what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g.. 32.16.) Present value Investment X Investmenty

Explanation / Answer

we can use annuity formula for finding the present value of cashflow

PV of annuity = cashflwo * (1 - (1+r)^(-n))/r

where r is interest rate

n is number of year

Present value of Investment X = $32648.12

Present value of Investment Y = $29907.78

similarly we will find for interest rate at 16%

For Investmetn X = 48000 * (1 - (1.16)^(-9))/.16 = $22111.41

For Investment Y = 7100 * (1 - (1.16)^(-5))/.16 = $23247.48

6% Year 1 2 3 4 5 6 7 8 9 CashFlow for X 4800 4800 4800 4800 4800 4800 4800 4800 4800 NPV $32,648.12 Year 1 2 3 4 5 CashFlow for Y 7100 7100 7100 7100 7100 NPV $29,907.78

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