To calculate: The present value of
Introduction:
The current worth of the
Answer to Problem 44QP
Solution:
The present value of
Explanation of Solution
Given information:
The payments for a fifteen-year
Timeline of the sales:
Formula to calculate the present value annuity:
Note: C denotes the annual cash flow, r denotes the rate of exchange, and t denotes the period. From the above information, it is necessary to compute the present value of annuity; but the rate of interest varies at the life of annuity. At first, it is essential to determine the last eight years’ present value of annuity.
Compute the present value of annuity for the last eight years:
Hence, the present value of annuity for the last eight years is $133,166.63.
Formula to calculate the present value:
Note: r denotes rate of discount and t denotes the number of years. The value of this cash flow is calculated. The lump sum is discounted for today.
Compute the present value:
Note: This is the present value of cash flow for today.
Hence, the present value of cash flow for today is $57,729.79451.
Compute the present value of annuity for the first seven years:
Hence, the present value of annuity for the first seven years is $99,134.79223.
Formula to calculate the present value of today’s cash flow:
Note: The PVA refers to present value of annuity.
Compute the present value of the cash flow today:
Hence, the present value of the cash flow today is $156,864.59.
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Chapter 4 Solutions
CORPORATE FINANCE (LL)-W/ACCESS
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