Question

You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. A large networking company wants to incorporate your software into its systems and is offering to pay you $461,000 today, plus $461,000 at the end of each of the following six years, for permission to do this. If the appropriate interest rate is 8 percent, what is the present value of the cash flow stream that the company is offering you? (Round factor values to 4 decimal places, e.g. 1.5215 and final answer to 2 decimal places, e.g. 15.25.)

Answer 1

Answer: $‭2,592,156.9‬0

Step-by-step explanation:

The payments of $461,000 are constant so this will be an annuity.

The present value of the cashflow being offered will therefore be the $461,000 being paid today plus the present value of the annuity.

Present value of Annuity = Annuity * Present value interest factor for 8%, 6 years.

= 461,000 * 4.6229

= $2,131,156.9‬0

Present Value of cashflow;

= 461,000 + 2,131,156.9‬

= $‭2,592,156.9‬0