Question

A firm with yearly net income of $35,000 has only two customers, each of whom makes identical purchases once per year. Timely Tom makes his purchase today and at the start of next year, while Late Louie makes his purchase half a year from today and halfway into next year (18 months from today). Moreover, Late Louie always pays 6 months late, i.e. at year end. What is the NPV of all cash flows to this firm in the next two years? Assume a yearly discount rate of 5.4%.

Answer 1