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Del Monty will receive the following payments at the end of the next three years: $23,000,...

Del Monty will receive the following payments at the end of the next three years: $23,000, $26,000, and $28,000. Then from the end of the fourth year through the end of the tenth year, he will receive an annuity of $29,000 per year.

At a discount rate of 10 percent, what is the present value of these future benefits? (

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Answer #1

Present Value of a cash flow can be calculated using the formula

Present Value, PV = Cash Flow * Discount Factor

Discount Factor, DF = 1/(1+r)t

Where r = discount rate

t = time to the cash flow

Present Value of all the cash flows can be calculated by the formula

This formula can be used to calculate the present value in a spreadsheet as shown below

Hence the present value of the future benefits = $169,507

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