question archive Determine the present value of $150,000 to be received at the end of each of four years, using an interest rate of 7% compounded annually, as follows: a
Determine the present value of $150,000 to be received at the end of each of four years, using an interest rate of 7% compounded annually, as follows: a
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Determine the present value of $150,000 to be received at the end of each of four years, using an interest rate of 7% compounded annually, as follows:
a. By successive computations, using the present value table in Exhibit 4.
b. By using the present value table in Exhibit 5.
c. Why is the present value of the four $150,000 cash receipts less than the $600,000 to be received in the future?
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a. First Year: $150,000 × 0.93458 = $ 140,187
Second Year: $150,000 × 0.87344 = 131,016
Third Year: $150,000 × 0.81630 = 122,445
Fourth Year: $150,000 × 0.76290 = 114,435
Total present value $508,083
b. $150,000 × 3.38721 = $508,081.50
c. This is because cash on hand today can be invested to earn income. If each of the $150,000 cash receipts is invested at 7%, it will be worth $508,081.50 at the end of four years.
