Question

3. ABC Company sold the rights to use one of their patented processes
that will result in them receiving cash payments of $10,000 at the
end of every six months for each of the next five years and a lump
sum payment of $20,000 at the end of the sixth year.

Calculate the total present value of these payments assuming the
interest rate is 10% compounded semi-annually.

You will need to use the time value of money table factors posted
in carmen to answer this question. To access these factors, click
modules and then scroll to the time value of money topic. Click
on the link labeled present & future value table factors. No
credit will be awarded for this question using a means other
than these table factors to answer this question.

Answer 1

Ans:

Cash Payments at end of every 6 Month for 5 Years : $10,000

Lump sum payment at the end of 5 years : $20,000

Interest rate 10% coumpounded semi annually.

Present Value Factor @10% for 5 years compunded semi annually : 1/(1.10/2)^(5*2) = 0.61391

Annuity Value Factor @10% for 5 years compunded semi annually : 1/(1.05)^1+1/(1.05)^2+........1/(1.05)^10 = 7.72173

Total Present Value of these payments : $10,000*7.72173 + $20,000*0.61391 = $89,495.50 or $89,496

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