Final answer:
To find how much Flaherty is willing to pay for an investment expected to return $146,000 in five years with a 15% return rate, calculate the present value using the formula PV = FV /(1 + r)ⁿ, where FV is $146,000, r is 0.15, and n is 5. Multiply the found present value factor by $146,000 to get the maximum payment she should consider for the investment.
Step-by-step explanation:
Flaherty is considering an investment that will return $146,000 in five years. To determine how much she should pay for this investment now, the present value (PV) must be calculated using the discount factor based on her desired 15% return rate. The discount factor is derived from the formula PV = FV / (1 + r)ⁿ, where FV is the future value, r is the interest rate, and n is the number of years until the amount is received. Using the provided tables, look for the present value factor for 5 years at 15%, and multiply it by the future value of $146,000.
To find the discount factor, we use the Present Value of $1 table for n=5 years and r =15%. Assuming the factor is not provided, let's do the calculation: PV factor = 1 / (1 + 0.15)⁵. After finding the factor, multiply it by the future value of $146,000 to get Flaherty's maximum current payment for the investment.
If the provided tables already give us the PV factor (to 4 decimal places as requested), we simply use that value in our calculation. However, without the exact factor from the tables, a hypothetical calculation might look like this:
PV factor = 1 / (1 + 0.15)⁵ ≈ 0.4972.
Therefore, the present value of the future $146,000 is approximately 0.4972 x $146,000 ≈ $72,611.20.