Question

What is the value of a building that is expected to generate fixed annual cash flows of $13,800 every year for a certain amount of time if the first annual cash flow is expected in 3 years from today and the last annual cash flow is expected in 8 years from today and the appropriate discount rate is 6.8 percent

Answer 1

the present value is $58,026

Step-by-step explanation:

The computation of the value of the building is shown below

Present value = Cash flows × Present value of discounting factor( interest rate%,time period)

= $13,800 ÷ 1.068^3 + $13,800 ÷ 1.068^4 + $13,800 ÷ 1.068^5 + $13,800 ÷ 1.068^6 + $13,800 ÷ 1.068^7 + $13,800 ÷ 1.068^8

= $58,026

Hence, the present value is $58,026