Question

Fishermen’s Corp. is considering purchasing a boat. If the boat was purchased, it is expected to receive $20,000 at the end of the first year, $40,000 at the end of the second year, and $60,000 at the end of the third year within its business.

What is the boat worth to Fishermen’s Corp today, assume an 8% discount rate.
$120,000$100,440$47,640$98,756

Answer 1

The boat today is worth 100,440 dollars

Step-by-step explanation:

We need to solve for the present value of the payment Fishermen's Corp will receive for the boat:

We will apply the formula for lump sum to each
`(Maturity)/((1 + rate)^(time) ) = PV`

cash flow and then add them together

`(20,000)/((1 + 0.08)^(1) ) = PV`

`(40,000)/((1 + 0.08)^(2) ) = PV`

`(60,000)/((1 + 0.08)^(3) ) = PV`

Year Nominal Present Value

1 20000 18, 518

2 40000 34,293

3 60000 47,630

TOTAL 100,441