Question

What is the value of a building that is expected to generate fixed annual cash flows of $13,800 every year for a certain amount of time if the first annual cash flow is expected in 4 years from today, the last annual cash flow is expected in 8 years from today, and the appropriate discount rate is 6.8%?

A. 36,091

B. 43,725

C. 38,545

D. 46,678

E. None of the above is within $20 of the correct answer

Answer 1

Solution:

Present Value of building: Annual Cashflow * ([email protected]%, 8 years - PVAF@ 6.8%, 4 years)

Present Value of building: $ 13,800 * ( 6.01785 - 3.40256)

Present Value of building: $ 13,800 * 2.61529

Present Value of building: $ 36,091

Hence, Correct option is "A." 36,091

Alternatively we can do this question as below:

Year	Cashflow	PVF @6.8%	Present Value
1	NIL	0.9363	NIL
2	NIL	0.8767	NIL
3	NIL	0.8208	NIL
4	NIL	0.7686	NIL
5	$ 13,800	0.7196	9,933
6	$ 13,800	0.6738	9,299
7	$ 13,800	0.6309	8,707
8	$ 13,800	0.5907	8,152
		TOTAL	36,091