A wealthy man just died and left his pet dogs the following estate: $20,000 per year for the next 11 years with the first cash f

Question

Dmitrij [34]

2 years ago

12

A wealthy man just died and left his pet dogs the following estate: $20,000 per year for the next 11 years with the first cash f

low today. at a discount rate of 4. 2%, what is the doggy estate worth in today's dollars?

SAT

1 answer:

Andre45 [30] · Answer 1 · 2023-04-17T06:03:10+03:00

The concept of present value lets us know that the doggy estate worth in today's dollars is $180614.80

<h3>What is the present value of the doggy estate worth?</h3>

The concept of present value is significant because it enables investors to determine whether the amount they pay for an investment is reasonable. The present value of a future cash flow defines how much it is worth in today's value.

From the given information:

The annual cashflow C = $20,000
Interest rate (i) = 4.2% = 0.042
Number of period (n) = 11

Thus, the present value of the doggy estate can be calculated by using the formula;
$\mathbf{PV = C \times \Big [ \dfrac{1 - \dfrac{1}{(1+i)^n}}{i}\Big] \times (1+i)}$

$\mathbf{PV = 20000 \times \Big [ \dfrac{1 - \dfrac{1}{(1+0.042)^{11}}}{0.042}\Big] \times (1+0.042)}$

PV = $180614.80

Learn more about how to calculate the Present value here:

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