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adoni [48]
4 years ago
10

An investment pays you $30,000 at the end of this year, and $15,000 at the end of each of the four following years. What is the

present value (PV) of this investment, given that the interest rate is 5% per year
Business
1 answer:
Stella [2.4K]4 years ago
8 0

Answer:

Present value of the cashflow discounted at 5% per year 76,815.65

Explanation:

First, we calculate the present value of the 4 years 15,000 dollar annuity:

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C 15,000.00

time 4

rate 0.05

15000 \times \frac{1-(1+0.05)^{-4} }{0.05} = PV\\

PV $53,189.2576

Now, we discount two more year as lump sum as this is two year after the invesmtent:

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity  53,189.26

time  2.00

rate  0.05000

\frac{53189.2575624354}{(1 + 0.05)^{2} } = PV  

PV   48,244.2245

Finally we also discount the 30,000 by one year

30,000 / 1.05 = 28571.43

<em><u>We add up both to get the present value:</u></em>

48,244.22 + 28,571.43 =  76,815.65  

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Answer:

a. At lower levels, management have fewer controllable costs

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The answer is A.

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