Question

Use Table PV-1 and Table PV-2 to determine the present values of the following cash flows. 

(For all requirements, round PV factor to 3 decimal places, Intermediate and final answer to the nearest dollar amount.) 

 a.

 $15,000 to be paid annually for 10 years, discounted at an annual rate of 6 percent. Payments are to occur at the end of each year.

 b.

 $9,200 to be received today, assuming that the money will be invested in a two-year certificate of deposit earning 8 percent annually.

 c.

 $300 to be paid monthly for 36 months, with an additional "balloon payment" of S12,000 due at the end of the c. 36th month, discounted at a monthly interest rate of 1% percent. The first payment is to be one month from today.

 d.

 $25,000 to be received annually for the first three years, followed by $15,000 to be received annually for the d. next two years (total of five years in which collections are received), discounted at an annual rate of 8 percent. Assume collections occur at year-end.

Answer 1

Solution a:

Present value of cash flows = $15,000 * Cumulative PV factor at 6% for 10 period

= $15,000 * 7.360 = $110,400

Solution b:

As $9,200 is received today, therefore Present value of cash flows is = $9,200

Solution c:

Monthly Payments = $300

Ballon payment at the end of 36 months = $12,000

Monthly interest rate = 1.5%

Period = 36

Present value = ($300 * Cumulative PV Factor at 1.5% for 36 periods) + ($12,000 * PV Factor at 1.5% for 36th period)

= $300*27.661 + $12,000*0.585

= $15,318

Solution d:

Computation of Present value of cash flows
Period	Cash flows	PV factor	Present Value
1	$25,000.00	0.926	$23,150.00
2	$25,000.00	0.857	$21,425.00
3	$25,000.00	0.794	$19,850.00
4	$15,000.00	0.735	$11,025.00
5	$15,000.00	0.681	$10,215.00
Present Value			$85,665.00