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 $516,000 today, plus $516,000 at the end of each of the following six years, for permission to do this. If the appropriate interest rate is 6 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: $‭‭3,053,326.8‬0

Step-by-step explanation:

Constant payments are annuities so the $516,000 annual payment is one.

Seeing as you will get a payment of $516,000 today, that is the present value of that first payment. The total present value therefore will be that first $516,000 plus the present value of the annuity discounted at 6% for 6 years.

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

= 516,000 * 4.9173

= $‭2,537,326.8‬0

Present Value of cashflow;

= 516,000 + ‭2,537,326.8‬0

= $‭‭3,053,326.8‬0