Total Expected
Value
$
2,800
P 6-6
Time diagram:
i = 12%
PV – OA = ? R =
($39,000)
($39,000) $18,000
$18,000 $68,000
$68,000 $68,000 $68,000 $38,000
$38,000 $38,000
0
1
5
6
10
11
12
29
30
31
39
40
n = 5
n = 5
n = 20
n = 10
(0 – $30,000 – $9,000)
($60,000 – $30,000 –
$12,000)
($110,000 – $30,000 –
$12,000)
($80,000 – $30,000 –
$12,000)
Formulas:
PV – OA = R (PVF – OA
n, i
) PV – OA = R (PVF – OA
n, i
)
PV – OA = R (PVF – OA
n, i
)
PV – OA =R (PVF – OA
n, i
)
PV – OA = ($39,000)(PVF –
OA
5, 12%
)
PV – OA = $18,000 (PVF –
OA
10-5, 12%
)
PV – OA = $68,000 (PVF – OA
30–
10, 12%
)
PV – OA = $38,000 (PVF – OA
40–
30, 12%
)
PV – OA =
($39,000)(3.60478)
PV – OA = $18,000 (5.65022 –
3.60478)
PV – OA = $68,000 (8.05518 –
5.65022)
PV – OA = $38,000 (8.24378 –
8.05518)
PV – OA = ($140,586.42)
PV – OA = $18,000 (2.04544)
PV – OA = $68,000 (2.40496)
PV – OA = $38,000 (.18860)
PV – OA = $36,818
PV – OA = $163,537
PV – OA = $7,167
Present value of future net cash inflows:
$(140,586.42)
36,817.92