Question

Del Monty will receive the following payments at the end of the next three years: $24,000, $27,000, and $29,000. Then from the end of the 4th year through the end of the 10th year, he will receive an annuity of $30,000 per year. At a discount rate of 16 percent, what is the present value of all three future benefits?

Answer 1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=24000/1.16+27000/1.16^2+29000/1.16^3+30000/1.16^4+30000/1.16^5+........+30000/1.16^10

=(24000*0.862068965)+(27000*0.743162901)+(29000*0.640657673)+(30000[1/1.16^4+1/1.16^5+1/1.16^6+....+1/1.16^10]

=(24000*0.862068965)+(27000*0.743162901)+(29000*0.640657673)+(30000*2.587337938)

which is equal to

=$136,954.26(Approx)(Please note that intermediate calculations have not been rounded off].