Question

Consider the following transaction data for a customer. Calculate the present value (value in 2019) of the margins captured from this customer. Use 8% for the time value of money.

Year                2015    2016    2017    2018    2019    2020

Margin ($)       120      260      320      80        100      250

Answer 1

Given r= 8%

Present year = 2019

So for 2015, 2016,2017, 2018 the value calculated will be future value as these years are coming before 2019

FV= PV *(1 + r)^t

For 2020, the value calculated will be present value as 2020 is coming after 2019

PV= FV/(1 + r)^t

Year	Margin ($)	Time to reach current year 2019	Formula	Present value
2015	120	-4	120 * (1 + 0.08)^4	$163.26
2016	260	-3	260 * (1 + 0.08)^3	$327.53
2017	320	-2	320 * (1 + 0.08)^2	$373.25
2018	80	-1	80 * (1 + 0.08)^1	$86.40
2019	100	0	100	$100
2020	250	+1	250/ (1 + 0.08)^1	$231.48

NOTE: final answers rounded off to two decimal places.