An asset is projected to generate 10 annual cash flows of $9,000starting 4 years from...

An asset is projected to generate 10 annual cash flows of $9,000 starting 4 years from today. If the discount rate is 12%, how much is this asset worth today? Round to the nearest cent. [Hint: This is a deferred annuity. Remember the rule about where on the timeline PV annuity goes when you have a deferred annuity.]

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Expert Solution

The amount is computed as shown below:

Present value = Future value / (1 + r)ⁿ

So, the amount will be as follows:

= $ 9,000 / 1.12⁴ + $ 9,000 / 1.12⁵ + $ 9,000 / 1.12⁶ + $ 9,000 / 1.12⁷ + $ 9,000 / 1.12⁸ + $ 9,000 / 1.12⁹ + $ 9,000 / 1.12¹⁰ + $ 9,000 / 1.12¹¹ + $ 9,000 / 1.12¹² + $ 9,000 / 1.12¹³

= $ 36,195.45 Approximately

jeff jeffy answered 2 years ago

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