Question

Dr. Dawson is considering two business opportunities. Both require an initial investment of $200,000. The first will return $50,000 at the end of each of the next 6 years, while the second will return $35,000 at the end of each of the next 10 years. Calculate the present value of the profit from these two businesses at each of the following discount rates: 7%, 8%, 9%, 10%, and 12%.

Answer 1

Answer: please refer to the explanation section

Explanation:

Investment $200 000, Profit = 50 000 and n = 6

Present Value(using 7%) = 50000/ (1 + 0.07)^6 = 33317.11

Present Value(using 8%) = 50000/ (1 + 0.08)^6 = 31508.48

Present Value(using 9%) = 50000/ (1 + 0.09)^6 = 29813.37

Present Value(using 10%) = 50000/ (1 + 0.10)^6 = 28223.70

Present Value(using 7%) =  50000/ (1 + 0.12)^6  = 25331.56

Investment $200 000, Profit = 35 000 and n = 10

Present Value(using 7%) = 35000/ (1 + 0.07)^10 = 17792.23

Present Value(using 8%) = 35000/ (1 + 0.08)^10 = 16211.77

Present Value(using 9%) = 35000/ (1 + 0.09)^10 = 14784.38

Present Value(using 10%) = 35000/ (1 + 0.10)^10 = 13494.02

Present Value(using 12%) =  35000/ (1 + 0.12)^10  =  11269.06

All present value figures have been rounded of to two decimal places