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You have been accepted into a prestigious private university in Illinois for your doctoral program. Congratulations!...

You have been accepted into a prestigious private university in Illinois for your doctoral program. Congratulations! Since no one from this school has ever graduated in only 4 years, you anticipate that you will need to make 11 semi-annual tuition payments of $35,000 each with the first cash flow 6 months from today. If you choose to discount these cash flows at an annual rate of 8%, what is the present value cost of tuition to attend your university of choice?

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Answer #1

Present value of cash flows = 35,000*PVAF(4%, 22 periods)

= 35,000*14.451

= $505,785

Since the payments are semi-annual, discounting rate will be halved and the periods will be doubled.

Present Value Factor can be found in present value annuity factor table.

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