Question

(Related to Checkpoint 5.4) (Present value) Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of $390,000 due in 26 years. In other words, they will need $390,000 in 26 years. Toni Flanders, the company's CEO, is scrambling to discount the liability to the present to assist in valuing the firm's stock. If the appropriate discount rate is 7 percent, what is the present value of the liability? If the appropriate discount rate is 7 percent, the present value of the $390,000 liability due in 26 years is $. (Round to the nearest cent.)

Answer 1

present value of a single amount = future value / (1+r)^n

here,

future value =$390,000

r =7% =>0.07.

n =26.

=>$390,000 / (1.07)^26.

=>$67,156.24.