Question

Below is a table for the present value of $1 at compound interest.

Year	6%	10%	12%
1	0.943	0.909	0.893
2	0.890	0.826	0.797
3	0.840	0.751	0.712
4	0.792	0.683	0.636
5	0.747	0.621	0.567

Below is a table for the present value of an annuity of $1 at compound interest.

Year	6%	10%	12%
1	0.943	0.909	0.893
2	1.833	1.736	1.690
3	2.673	2.487	2.402
4	3.465	3.170	3.037
5	4.212	3.791	3.605

Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value of the investment cash inflows, assuming an earnings rate of 12%?

Answer 1

Present value of the investment cash inflows= $21,266

Year	Net Cash Flow	Present value Discounting factor at 12%	Discounted Cash Flow
1	$               7,000.00	0.893	$            6,251.00
2	$               7,000.00	0.797	$            5,579.00
3	$               7,000.00	0.712	$            4,984.00
4	$               7,000.00	0.636	$            4,452.00
Present value of the investment cash inflows			$          21,266.00

Net present value = $1266