Question

You just signed a consulting contract that will pay you $38,000, $42,000, and $45,000 annually at the end of the next three years, respectively. What is the present value of this contract given a discount rate of 10.5?
(A) $102138.76
(B) $108.30767
(C) $112860.33
(D) $92433.27
(E) $96.422.15

Answer 1

Answer:

A: $102138.76

Explanation:

Since there are uneven cash flows, we will have to calculate each cash flow separately for that year.

Formula:

PV = $\frac{CF}{(1+r)^n} + \frac{CF}{(1+r)^n} +\frac{CF}{(1+r)^n}$

Where;

• CF = Cash flows.
• r = Discount rate.
• n = number of period.

Putting the values in the formula we get;

PV = $\frac{38,000}{(1+0.105)^1} + \frac{42,000}{(1+0.105)^2} +\frac{45,000}{(1+0.105)^3} =$ $102138.76