Question

Using the tables in Exhibits 26-3 and 26-4, determine the present value of the following cash flows, discounted at an annual rate of 15 percent. (Round "PV factors" to 3 decimal places. Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.)

$10,600 to be received 20 years from today.

$16,000 to be received annually for 10 years.

$11,500 to be received annually for five years, with an additional

$12,000 salvage value expected at the end of the fifth year.

$28,000 to be received annually for the first three years, followed by $20,000 received annually for the next two years (total of five years in which cash is received).

Answer 1

PVIF Present Value Interest Factor

PVIFA Present Value Annuity Factor

$10,600 to be received 20 years from today.

Rate = 15%

FV = $10,600

Term = 20 years

PV = 10600/(1+15%)^20 or 10600* PVIF (15%, 20)

FV = 10600 * 0.061 = $646.60

$16,000 to be received annually for 10 years.

Rate = 15%

Annual receipt amount or annuity amount = $16000

Term = 10 years

PV = 16000*((1-(1+15%)^-10)/15%) or PV = 16000*PVIFA(15%,10)

PV = 16000*5.019 = $80,304

$11,500 to be received annually for five years, with an additional $12,000 salvage value expected at the end of the fifth year.

PV = 11500 * PVIFA (15%,5) + 12000 * PVIF (15%,5)

PV = 11500 * 3.352 + 12000 * 0.497 = 38548 + 5964 = $44,512

$28,000 to be received annually for the first three years, followed by $20,000 received annually for the next two years (total of five years in which cash is received).

PV = 28000 * PVIFA(15%,3) + 20000*PVIFA(15%,2)*PVIF(15%,3)

PV = 28000 * 2.283 + 20000*1.626*0.658 = 63924 + 21398.16 = $85,322.16