Question

problem 6-6 calculating annuity values [lo1] your company will generate $59,000 in annual revenue each year for the next seven years from a new information database. if the appropriate discount rate is 8.25 percent, what is the present value? (do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

The present value of the annual revenue is $295,869.38.

Step-by-step explanation:

To calculate the present value of the annual revenue, we need to discount each year's revenue by the appropriate discount rate. In this case, the discount rate is 8.25 percent. We can use the formula for calculating the present value of an annuity:

Present Value = Annual Revenue / (1 + Discount Rate)^n

Using this formula, we can calculate the present value for each year and then sum them up to get the total present value:

1. Year 1: $59,000 / (1 + 0.0825)^1 = $54,542.99
2. Year 2: $59,000 / (1 + 0.0825)^2 = $50,228.76
3. Year 3: $59,000 / (1 + 0.0825)^3 = $46,054.94
4. Year 4: $59,000 / (1 + 0.0825)^4 = $42,013.84
5. Year 5: $59,000 / (1 + 0.0825)^5 = $38,098.90
6. Year 6: $59,000 / (1 + 0.0825)^6 = $34,304.74
7. Year 7: $59,000 / (1 + 0.0825)^7 = $30,625.21

Adding up the present values for each year, we get:

Total Present Value = $54,542.99 + $50,228.76 + $46,054.94 + $42,013.84 + $38,098.90 + $34,304.74 + $30,625.21 = $295,869.38

Therefore, the present value of the annual revenue is approximately $295,869.38.

Answer 2

To calculate the present value of the annual revenue, we need to discount each cash flow back to the present time using the appropriate discount rate. In this case, the discount rate is 8.25%. We can calculate the present value for each year and then sum them up to get the total present value.

Step-by-step explanation:

To calculate the present value of the annual revenue, we need to discount each cash flow back to the present time using the appropriate discount rate. In this case, the discount rate is 8.25%. The formula to calculate the present value of an annuity is:

Present Value = Cash flow / (1 + Discount Rate)^n

Using this formula, we can calculate the present value for each year and then sum them up to get the total present value:

Year 1: PV = $59,000 / (1 + 0.0825)^1 = $54,537.32

Year 2: PV = $59,000 / (1 + 0.0825)^2 = $50,311.75

Continue this calculation for all seven years and sum up the present values of each year to get the total present value.