Question

Del Monty will receive the following payments at the end of the next three years: $15,000, $18,000, and $20,000. Then from the end of the 4th year through the end of the 10th year, he will receive an annuity of $21,000 per year.

At a discount rate of 16 percent, what is the present value of all three future benefits?  (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Present value of all future benefits = $____

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Answer #1

Answer:

Cash flow in year 1 CF1=15000

Cash flow in year 2 CF2=18000

Cash flow in year 3 CF3=20000

Cash flow in year 4 through 10th C=21000

Discount rate r=16%

Present value P=CF1/(1+r) + CF2/(1+r)^2 + CF3/(1+r)^3 + C*(1-(1+r)^-7)/(r*(1+r)^3)

P=15000/(1+16%) + 18000/(1+18%)^2 +20000/(1+18%)^3 + 21000*(1-(1+16%)^-7)/(16%*(1+16%)^3)

P= $93455.22

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