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Unformatted text preview: eriods, n 2% 4 B 5 3 D 4–10 2 C LG2 10
13 2 Present values For each of the cases shown in the following table, calculate the
present value of the cash flow, discounting at the rate given and assuming that
the cash flow is received at the end of the period noted. Case Single cash
flow Discount rate End of
period (years) A $ 7,000 12% 4 B 28,000 8 20 C 10,000 14 12 D 150,000 11 6 E 45,000 20 8 LG2 4–11 Present value concept Answer each of the following questions.
a. What single investment made today, earning 12% annual interest, will be
worth $6,000 at the end of 6 years?
b. What is the present value of $6,000 to be received at the end of 6 years if the
discount rate is 12%?
c. What is the most you would pay today for a promise to repay you $6,000 at
the end of 6 years if your opportunity cost is 12%?
d. Compare, contrast, and discuss your findings in parts a through c. LG2 4–12 Present value Jim Nance has been offered a future payment of $500 three years
from today. If his opportunity cost is 7% compounded annually, what value
should he place on this opportunity today? What is the most he should pay to
purchase this payment tod...
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