Question

You are valuing an investment that will pay you nothing the first two years, $6,000 the third year, $8,000 the fourth year, $12,000 the fifth year, and $18,000 the sixth year (all payments are at the end of each year). What is the value of the investment to you now if the appropriate annual discount rate is 6.00%?

a) $33,030.85
b) $25,694.70
c) $44,000.06
d) $39,250.39
e) $48,980.87

Answer 1

$33,030.85

Step-by-step explanation:

we are to determine the present value of the cash flows

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 and 2 = 0

Cash flow in year 3 = $6,000

Cash flow in year 4 = $8,000

Cash flow in year 5 = $12,000

Cash flow in year 6 = $18,000

I = 6 %

PV = $33,030.85

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute