Question

1-what is the present value of 40000 at the end of each year for the next 9 years if the discount rate is 11 percent?

2-what is the pv of 100000 at the end of year 9 if discount is 11%

3-whats is the present value of this contract

Question Help res (Present value of a complex stream) Don Draper has signed a contract that will pay him $40,000 at the end of each year for the next 9 years, plus an additional $100,000 at the end of year 9. If 11 percent is the appropriate discount rate, what is the present value of this contract?

Answer 1

Step1: Calculation of PV of 40,000$ received at the end of each year Years PVF (11%) Cash Flow PV Cash Flow 1 0.9009 $ 40,000 $36,036 0.8116 $ 40,000 $ 32,465 0.7312 $ 40,000 $ 29,248 0.6587 $ 40,000 $ 26,349 0.5935 $ 40,000 $ 23,738 0.5346 $ 40,000 $ 21,386 0.4817 $ 40,000 $ 19,266 0.4339 $ 40,000 $ 17,357 0.3909 $ 40,000 $ 15,637 Present Value $2,21,482 COWN

Step2: Calculation of PV of 100,000$ received at the end of 9th year Years PVF (11%) Cash Flow PV Cash Flow 0.9009 0.8116 0.7312 0.6587 0.5935 0.5346 0.4817 0.4339 0.3909 $1,00,000 $ 39,092 Present Value $ 39,092

Step3 : Calculation of PV of 40,000$ received at the end of each 9 years & 100,000$ at the end of 9th year Years PVF (11%) Cash Flow PV Cash Flow 0.9009 $ 40,000 $36,036 0.8116 $ 40,000 $ 32,465 0.7312 $ 40,000 $ 29,248 0.6587 $ 40,000 $ 26,349 0.5935 $ 40,000 $ 23,738 0.5346 $ 40,000 $ 21,386 0.4817 $ 40,000 $ 19,266 0.4339 $ 40,000 $ 17,357 0.3909 $ 40,000 $ 15,637 0.3909 $1,00,000 $39,092 Present Value $2,60,574