Question

Durran has recently acquired a rare art piece that he plans to put on display in his private collection. He estimates that revenues generated from donations and admissions tickets to see the new exhibit will be $2,000 per month for the next eight years. If he requires a rate of return of 12%, how much are the expected cash flows worth for him today? Round to two decimal places.

Answer 1

Using present value of annuity formula , we can calculate the today's expected cash flows worth.
Present value of annuity = P*{[1 - (1+r)^-n]/r}
Present value of annuity = Today's expected cash flows worth = ?
P = Estimated revenue per month = $2000
r = required rate of return per month = 12%/12 = 1%
n = number of months = 8 years * 12 = 96
Present value of annuity = 2000*{[1 - (1+0.01)^-96]/0.01}
Present value of annuity = 2000*61.53
Present value of annuity = 123055.41
Today's expected cash flows worth = $1,23,055.41