Question

In: Finance

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


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