Question

You will receive annual payments of $20,000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15% What is the present value of the payments? Future Value of 1 (15%, 4 periods) = 1.74901 Future Value of an Annuity of 1 (15%, 4 periods) = 4.99338 Present Value of 1 (15%, 4 periods) = 0.57175 Present Value of an Annuity of 1 (15%, 4 periods) = 2.85498 Group of answer choices $57,099.60 $80,000.00 $31,470.30 $72,095.60

Answer 1

Present Value = $57,099.57

Step-by-step explanation:

The Present Value of a series of future equal amount is the amount the sum in today's terms that would make one to be indifferent . It is the future series of cash flows discounted at the opportunity cost rate of return.

Present Value = A × ( 1-(1+r)^(-n))/r

A- annual cash flow- 20,000, r- discount rate - 15%, n number of years- 4

PV = 20,000 × (1- 1.15^(-4))/0.15

= 20,000 × 2.85498

= $57,099.57