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For each of the following independent scenarios, calculate the present value of the cash flow described
For each of the following independent scenarios, calculate the present value of the cash flow described. Round to the nearest dollar.
a) $20,000 will be received at the end of each year for 6 years. The rate is 12%.
b) $20,000 will be received at the end of each year for 6 years. The rate is 15%.
c) $20,000 will be received at the end of each year for 6 years. The rate is 7%.
d) $120,000 will be received at the end of each year for 4 years. The rate is 10%.
Expert Solution
a) Computation of the present value:-
Present value = Annuity*((1-1/(1+rate)^n)/rate)
= $20,000*((1-1/(1+12%)^6)/12%)
= $20,000*4.11141
= $82,228.15 Or $82,228
b) Computation of the present value:-
Present value = Annuity*((1-1/(1+rate)^n)/rate)
= $20,000*((1-1/(1+15%)^6)/15%)
= $20,000*3.78448
= $75,689.65 Or $75,690
c) Computation of the present value:-
Present value = Annuity*((1-1/(1+rate)^n)/rate)
= $20,000*((1-1/(1+7%)^6)/7%)
= $20,000*4.76654
= $95,330.79 Or $95,331
d) Computation of the present value:-
Present value = Annuity*((1-1/(1+rate)^n)/rate)
= $120,000*((1-1/(1+10%)^4)/10%)
= $20,000*3.16987
= $380,383.85 Or 380,384
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