These televisions sell for $2,500 each. An offer has arrived on your desk from a major...

These televisions sell for $2,500 each. An offer has arrived on your desk from a major retailer to buy 100,000 televisions with 10 equal annual payments of $20 million starting immediately. The current interest rate is 6%,What is the present value of the order?

Expert Solution

Solution:
	The present value of the order is $156,033,845.49 in two decimal or $156,033,845 in whole number OR $156.03 millions

Working Notes:
	The present value of the order in which annual payments starting immediately is known as present value of annuity due which we compute using following way.


	Present value of annuity due = P x (1+i) (1-(1/(1+i)^n))/i

	P= yearly payment = $20 million =$20,000,000
	let i= interest rate per period = 6% per year
	n= no. Of period = 10 x 1 =10

	PV of annuity due= ??

	Present value of annuity due = P x (1+i) (1-(1/(1+i)^n))/i
	Present value of annuity due = 20,000,000 x (1+6%) (1-(1/(1+6%)^10))/6%
	Present value of annuity due = 156033845.490
	Present value of annuity due = $156,033,845.490
	Present value of annuity due = $156,033,845

Hence	The present value of the order is $156,033,845.49

Please feel free to ask if anything about above solution in comment section of the question.

jeff jeffy answered 2 years ago

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