Question

Carol thomas will pay out $6000 at the end of year two and $8000 at the end of year three. then carol will recieve $10,000 at the end of year four. with an interest rate of 10%, what is the net value of the payments verses receipts in todays dollars

Answer 1

Solution:

PV = FV x $PV_{if}$ (App. B: 10%, 2 periods)

       = $6,000 x 0.826 - $4,956

PV = FV x $PV_{if}$ (App. B: 10%, 3 periods)

    = $8,000 x 0.751 = $6,008

PV = FV x $PV_{if}$ (App. B: 10%, 4 periods)

    = $10,000 x 0.683 = $6,830

Net Value of Payments = ($4,956) + ($6,008) + $6,830 = ($4,134)