Question

Ben sold his small online business for $100,000. The purchaser will pay him $20,000 today, then $20,000 every year for the next four years. Assume
that Ben could invest a lump-sum payment today in an account yielding an interest rate of 4% annually. Find the total present value of all five
payments
A.
$87,096
B
$88,384
c. $92,598
D. $93,964

Answer 1

Answer:

$92,598

Step-by-step explanation:

The purchaser pays Ben $20,000 today and then $20,000 every year for the next 4 years.

The interest rate is 4% per annum.

So the net present value of all the payments is :

20000 + 20000/1.04 + 20000/(1.04^2) + 20000/(1.04^3) + 20000/(1.04^4)

= 20000 + 19230.77 + 18491.12 + 17779.73 + 17096.08

= 92597.7

= 92,598 (approx)

So the net present value of all the payments made to Ben is $92,598.

Answer 2

The answer is c $92,598