Question

Please help me solve: Del Monty will receive the following payments at the end of the next three years: $14,000, $17,000, and $19,000. Then from the end of the 4th year through the end of the 10th year, he will receive an annuity of $20,000 per year. At a discount rate of 10 percent, what is the present value of all three future benefits? Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=$14000/1.1+17000/1.1^2+19000/1.1^3+20000/1.1^4+20000/1.1^5+................+20000/1.1^10

=14000/1.1+17000/1.1^2+19000/1.1^3+20000[1/1.1^4+1/1.1^5+...............+1/1.1^10]

=(14000*0.90909)+(17000*0.826446281)+(19000*0.7513148)+(20000*3.657715115)

which is equal to

=$114,206.14(Approx).