Asked by Cynaria Candylady on Mar 10, 2024
Verified
Hazel Company has just purchased equipment that requires annual payments of $40000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the payments?
A) $114199
B) $160000
C) $46975
D) $150135
Discount Rate
The interest rate used to discount future cash flows to their present value, often used in investment and financial analysis.
Present Value
The current worth of a future sum of money or stream of cash flows given a specific rate of return.
- Assess the current valuation of a single payment and an annuity.
Verified Answer
DM
Destiny MorenoMar 10, 2024
Final Answer :
A
Explanation :
The present value of an annuity can be calculated using the formula PV = PMT * [(1 - (1 + r)^-n) / r], where PMT is the annual payment, r is the discount rate, and n is the number of periods. Plugging in the given values (PMT = $40,000, r = 0.15, n = 4), the calculation gives a present value of approximately $114,199.
Learning Objectives
- Assess the current valuation of a single payment and an annuity.