Question

Ambrin Corp. expects to receive $2,000 at the end of each year for 10 years. Then the corporation expects to receive $3,500 per year for the following 10 years, at the end of each year. What is the approximate present value of this 20-year cash flow? Use an 8% discount rate.

(A) $2.547
(B) $24,294
(C) $27,870
(D) $32,389

Answer 1

B) $24294

Step-by-step explanation:

PVIFA = (1 - (1 + r)^-n)/r

= (1 - (1 + 8%)^-10)/8%

= 6.710

PVIF = 0.4632

present value = (amount expected to receive for the first 10 years)×(PVIFA) + (amount expected to receive for the second 10 years)×(PVIFA)×(PVIF)

= (2000)×(6.710) + (3500)×(6.710)×(0.463)

= $24293.6

≈ $ 24294