Question

Calculate the present value of the following future cash flows, rounding all calculations to the nearest dollar.

11. \(5,000 received in three years with interest of 10%

12. \)5,000 received in each of the following three years with interest of 10%

13. Payments of \(2,000, \)3,000, and $4,000 received in years 1, 2, and 3, respectively, with interest of 7%

Short answer

11. Present value of $5,000 received in three years with interest of 10% is $3,755.

12. Present value of $5,000 received in each of the following three years with interest of 10% is $4,545, $4,130, and $3,755.

13. Present value of $2,000, $3,000, and $4,000 received in years 1, 2, and 3, respectively, with interest of 7% is $1,870, $2,619, and $3,264.

Step-by-step solution

11.Computing present value-

$\begin{array}{c}\text{Presentvalue}=\text{Amountofeachcashinflow}\times \text{PVfactori}\\ =\text{\$5,000}\times 0.751\\ =\text{\$3,755}\end{array}$

12.Computing present value-

Amount	x	PV factor for i	=	Present value
$5,000	X	0.909	=	$4,545
$5,000	X	0.826	=	$4,130
$5,000	x	0.751	=	$3,755
				$12,430

13. Computing present value-

Amount	x	PV factor for i	=	Present value
$2,000	X	0.935	=	$1,870
$3,000	X	0.873	=	$2,619
$4,000	x	0.816	=	$3,264
				$7,753