Question

calculate the present value assuming an investment return rate of 7.5%.

Show your work and give the calculated answer

Year	Expense
0	200,000
1	200,000
2	300,000

Answer 1

Here we will use the following present value formula:

PV = FV / (1 + r%)ⁿ

where, FV = Future value, PV = Present value, r = rate of interest = 7.5%, n= time period

For calculating the present value the given expenses, we will calculate the present values of all the years and add them up. Now,putting the values in the above equation, we get,

PV = $200000 / (1 + 7.5%)+ $200000 / (1 + 7.5%)² + $300000 / (1 + 7.5%)³

PV = $200000 / (1 + 0.075)+ $200000 / (1 + 0.075)² + $300000 / (1 + 0.075)³

PV = $200000 / (1.075)+ $200000 / (1.075)² + $300000 / (1.075)³

PV = $186046.5116+ ($200000 / 1.155625) + ($300000 / 1.242296875)

PV = $186046.5116 + $173066.52244 + $241488.17085

PV = $600601.205

So, required present value is $600601.205.