Question

1. Penny bought a new truck today from Middlefield Motors. She will receive a cash rebate of 5,200 dollars from Middlefield Motors today, pay 26,800 dollars to Middlefield Motors in 1 year(s), receive a cash rebate of 7,700 dollars from Middlefield Motors in 2 year(s), and pay 21,000 dollars to Middlefield Motors in 9 year(s). If the discount rate is 7.46 percent, then what is the present value of the cash flows associated with this transaction? Note: the correct answer is less than zero.

Answer 1

Year	Cash flow	× factor@ 7.46%	Present value
0	$          5,200.00	1.0000	$                5,200.00
1	$      (26,800.00)	0.9306	$            (24,939.51)
2	$          7,700.00	0.8660	$                6,668.02
9	$      (21,000.00)	0.5233	$            (10,990.00)
Present value			$            (24,061.49)

Answer is:

-24,061.49