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Hiller Corporation makes an investment today (January 1, 2014)
Hiller Corporation makes an investment today (January 1, 2014). They will receive
$50,000 every December 31st for the next six years (2014 – 2019). If Hiller wants to earn
12% on the investment, what is the most they should invest on January 1, 2014?
a) $205,571
b) $230,239
c) $465,760
d) $454,450
Expert Solution
Computation of the present value:-
Present value = Annual payment*((1-1/(1+rate)^n)/rate)
= $50,000*((1-1/(1+12%)^6)/12%)
= $50,000*4.11141
= $205,570.50 Or $205,571
Hence, the correct option is a) $205,571
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