What is the present value of the following cash flows at a discount rate of 6%?...

What is the present value of the following cash flows at a discount rate of 6%? Years 1 – 5 $10,000 Years 6 – 10 $12,000 Years 11 – 20 $15,000

A. $109,896
B. $119,157
C. $141,544
D. $129,639

If a professor currently earns $80,000 per year and expects annual salary increases of 3%, approximately how long will the professor have to work before his/her annual salary reaches $500,000 per year?

A. 62 years
B. 49 years
C. 101 years
D. 84 years

Solutions

Expert Solution

Answer :1) Correct Option is (C.) $141544

Calculations :

Year	Cash Flows	PVF @ 6%	Present Value of Cash Flows
1	10000	0.943396226	9433.962264
2	10000	0.88999644	8899.9644
3	10000	0.839619283	8396.19283
4	10000	0.792093663	7920.936632
5	10000	0.747258173	7472.581729
6	12000	0.70496054	8459.526485
7	12000	0.665057114	7980.685363
8	12000	0.627412371	7528.948456
9	12000	0.591898464	7102.781562
10	12000	0.558394777	6700.737323
11	15000	0.526787525	7901.812881
12	15000	0.496969364	7454.540454
13	15000	0.468839022	7032.585334
14	15000	0.442300964	6634.514466
15	15000	0.417265061	6258.975911
16	15000	0.393646284	5904.694256
17	15000	0.371364419	5570.466279
18	15000	0.350343791	5255.156867
19	15000	0.33051301	4957.695157
20	15000	0.311804727	4677.070903

		Present value of Cash Flows	141544

Answer : Correct Option is A.62 years

Calculation:

Calculation of Number of years

Using NPER function of Excel

=NPER(rate,pmt,pv,fv)

where

rate is 3%

pmt is 0

pv is the present value i.e 80000

fv is future value i.e 500000

=NPER(3%,0,80000,-500000)

The number of years is 62 years

jeff jeffy answered 1 year ago

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