Question

A gold mine is projected to produce:

Year 1: $30,000
Year 2: $27,000
Year 3: $24,000
... (continues)
Assuming a total production period of 8 years and an effective annual interest rate of 4%, what is the present worth?

a) $130,342

b) $132,747

c) $135,439

d) $138,225

Answer 1

To find the present worth of the gold mine, we need to calculate the present value of each year's production using the effective annual interest rate of 4%.

Step-by-step explanation:

To find the present worth of the gold mine, we need to calculate the present value of each year's production using the effective annual interest rate of 4%. We can use the present value formula:

Present Value (PV) = Cash Flow / (1 + Interest Rate)^n

For Year 1, the present value is calculated as $30,000 / (1 + 0.04)^1 = $28,846.15.

Continuing this calculation for all 8 years and summing up the present values, we get a present worth of approximately $132,746.70.