Question

Investment X offers to pay you $7,700 per year for 9 years, whereas Investment Y offers to pay you $10,600 per year for 5 years. a. If the discount rate is 7 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. If the discount rate is 21 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

Investment X

Present value if discount rate is 7% = $50,167.29

Present value if discount rate is 21% = $30,071.84

Investment Y

Present value if discount rate is 7% = $43,462.09

Present value if discount rate is 21% = $31,015.43

Step-by-step explanation:

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Investment X

Cash flow each year from year 1 to 9 = $7,700

Present value if discount rate is 7% = $50,167.29

Present value if discount rate is 21% = $30,071.84

Investment Y

Cash flow each year from year 1 to 5 = $10,600

Present value if discount rate is 7% = $43,462.09

Present value if discount rate is 21% = $31,015.43