Determine the amount of cash that Larry Mattingly's father should give him.

Larry Mattingly turned 20 years old today. His grandfather had established a trust fund that will pay him $83,000 on his next birthday. However, Larry needs money today to start his college education, and his father is willing to help. Mr. Mattingly has agreed to give Larry the present value of the $83,000 future cash inflow, assuming a 10 percent rate of return. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Required

a. Determine the amount of cash that Larry Mattingly's father should give him. (Round your final answer to the nearest whole dollar value.)

Solutions

Expert Solution

The Future Class Inflow Formula is:

Investment + (Desired Rate of Return x Investment) = Future Class Inflow

The Desrred Rate of Return is 10% or 0.10.

The future Class Inflow is $83,000.

You solve the problem by plugging these values into the formula and solving for Investments.

Investment + ( 0.10 x Investment) = Future Class Inflow

1.10 x Investment = $83,000

Investment = $83,000 / 1.10

Investment = $75,454.55

$75,455

The amount of cash that Larry Mattingly's father should give him is $75,455

Christopher Mann answered 2 years ago

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