Asked by Emily Treadaway on May 29, 2024
Verified
Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next four years, what would be the present value of the investment cash inflows, assuming an earnings rate of 12%?
A) $20,352
B) $3,969
C) $22,190
D) $21,259
Present Value
Present value is a financial concept that calculates the current worth of a future sum of money or stream of cash flows, given a specified rate of return.
Annuity
A financial product that pays out a fixed stream of payments to an individual, often used as an investment for retirement.
Earnings Rate
A measure of the profitability of a company or investment, typically expressed as a percentage.
- Acquire the ability to compute present value and future cash flows with reference to present value tables.
Verified Answer
MS
Maleia StewartJun 01, 2024
Final Answer :
D
Explanation :
The present value of the investment cash inflows can be calculated using the present value of an annuity table for 12%. For 4 years at 12%, the factor is 3.037. Therefore, the present value of the cash inflows is $7,000 * 3.037 = $21,259.
Learning Objectives
- Acquire the ability to compute present value and future cash flows with reference to present value tables.