You are a financial consultant

Finance Dec 26, 2020

You are a financial consultant. A potential client offers to pay you a retainer of $5,000 today in order to engage you for a two-year project which will pay you $20,000 at the end of Year One and $20,000 at the end of Year Two. What is the present value of this business proposition at a discount rate of 7.0%?

Expert Solution

Present value = Future value / (1 + rate)^periods

Present value = 5000 + 20,000 / (1 + 0.07)^1 + 20,000 / (1 + 0.07)^2

Present value = 5000 + 18,691.58879 + 17,468.77457

Present value = $41,160.36

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