Question

You are valuing an investment that will pay you $25,000 per year for the first 5 years, $35,000 per year for the next 10 years, $74,000 per year the next 16 years, and $66,000 per year for the following 10 years (all payments are at the end of each year). If the appropriate annual discount rate is 6.00%, what is the value of the investment to you today? $2,581,510.80 $536,471.26 $2,319,000.00 $1,613,487.29 $689,640.39

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

ДА В Annual discount rate C D E F G 6% Year 32-41 $66,000.00 Annual Payments No. of Years Present value Year 1-5 $25,000.00 5 $105,309.09 Year 6-15 $35,000.00 10 $ 192,495.98 Year 16-31 $74,000.00 16 $312,045.94 10 $79,789.38 Total Present value $689,640.39 11

Cell reference -

с ДА В Annual discount rate 0.06 Ε FNM + Annual Payments No. of Years Present value Year 1-5 Year 6-15 25000 35000 10 =PV($C$1,C5,-C4,,0) =PV($C$1,D5,-D4,0)/(1+C1)^5 Year 16-31 74000 16 =PV($C$1, E5,-E4,,0)/(1+C1)^15 Year 32-41 66000 10 =PV($C$1,F5,-F4,,0)/(1+C1)^31 Total Present value =SUM(C6:F6) -

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.