Question

Blossom Company is considering an investment that will return a lump sum of $850,000 3 years from now. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What amount should Blossom Company pay for this investment to earn an 6% return? (Round answer to 2 decimal places, e.g. 25.25.)

Answer 1

To earn a 6% return, Blossom Company should pay approximately $731,364.06 for the investment.

Step-by-step explanation:

To determine the amount that Blossom Company should pay for the investment, we need to calculate the present value of the future lump sum of $850,000. The present value can be calculated using the formula:

`PV = FV / (1 + r)^n`

Where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

Plugging in the values,

`PV = 850000 / (1 + 0.06)^3`

= $731,364.06.

Therefore, Blossom Company should pay approximately $731,364.06 to earn a 6% return on their investment.