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17 February, 04:21

You will receive annual payments of $800 at the end of each year for 12 years. The first payment will be received in Year 3. What is the present value of these payments if the discount rate is 7 percent?

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  1. 17 February, 05:43
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    Present value = $5,549.96

    Explanation:

    Giving the following information:

    Cash flow:

    Year 1=0

    Year 2 = 0

    Year 3 = 800

    ...

    Year 14 = 800

    i = 0.07

    We need to use the formula of present value to calculate how much this cash flow is worth today.

    NPV = ∑[Cf / (1+i) ^n]

    Cf = cash flow

    For example:

    Year 3 = 800 / (1.07^3) = 653.04

    Year 8 = 800 / (1.07^8) = 465.61

    Year 14 = 800 / (1.07^14) = 310.25

    Present value = $5,549.96
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