Question

Derek has the opportunity to buy a money machine today. The money machine will pay Derek $37,630.00 exactly 14.00 years from today. Assuming that Derek believes the appropriate discount rate is 14.00%, how much is he willing to pay for this money machine

Answer 1

$6,010

Step-by-step explanation:

The money that Derek will be willing to pay should equal the future cash flows in todays money, this is known as the Present Value(PV).

FV = $37,630.00

PMT = $0

N = 14

I = 14.00 %

P/YR = 1

PV = ?

Using a Financial calculator the PV is $6,010

Therefore,

Derek will be willing to pay $6,010 for this money machine