Unformatted text preview: nt Value of future cash flows of $1,000/year for four years, assuming interest rates =10%?
This means how much $$ do you have to invest today, so that you will receive $1,000 at the end of year 1, year 2, year 3 & year 4?
Using Table on Page 205, look under the 10% column for 4 years and see the PV factor of 3.16987. This means that if you invest
($1,000 x 3.16987) or $3,169.87 today, you will be able to receive $1,000/year for four years (like an annuity)
Balance
Balance today
$3,169.87
Year 1 interest (10% x $3,169.87)
$316.99
$3,486.86
Year 1 withdrawal
$1,000.00
$2,486.86
Year 2 interest (10% x $2,486.86)
$248.69
$2,735.54
Year 2 withdrawal
$1,000.00
$1,735.54
Year 3 interest (10% x $1,735.54)
$173.55
$1,909.10
Year 3 withdrawal
$1,000.00
$909.10
Year 4 interest (10% x $909.10)
$90.91
$1,000.01
Year 4 withdrawal
$1,000.00
$0.01...
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 Spring '14
 Net Present Value, residual value

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