Question

Investment End of Year ܢ 2 3 4 5 A $ 2,000 3,000 4,000 (5,000) 5,000 B $3,000 3,000 3,000 3,000 5,000 C $ 5,000 5,000 (5,000) (5,000) 15,000 What is the present value of each of these three investments if the appropriate discount rate is 12 percent?

Answer 1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

A:Present value=2000/1.12+3000/1.12^2+4000/1.12^3-5000/1.12^4+5000/1.12^5

=$6683.96(Approx)

B:Present value=3000/1.12+3000/1.12^2+3000/1.12^3+3000/1.12^4+5000/1.12^5

=$11949.18(Approx)

C:Present value=5000/1.12+5000/1.12^2-5000/1.12^3-5000/1.12^4+15000/1.12^5

=$10225.17(Approx)