Answer:
The present value of this investment is $204,737
Explanation:
Investment Involves two payment $16,400 every year and $164,000 once after eighth year.
Payment of $16,400 at the end of each year for 8 years is an annuity which is discounted at 6%.
Present value of this annuity
Present value of annuity = P [ 1 - ( ( 1 + r )^-n ) / r ]
Where
P = $16,400
r = 6%
n = 8 years
Present value of annuity = $16,400 [ 1 - ( ( 1 + 6% )^-8 ) / 6% ]
Present value of annuity = $101,841
Now calculate the present value of single payment of $164,000 at the end of eighth year.
Present value = FV / ( 1 + r )^n
Present value = $164,000 / ( 1 + 6% )^8 = $102,896
Present value of Investment = $101,841 + $102,896 = $204,737
