Question

Sunland Company is considering an investment that will return a lump sum of $580,000 5 years from now. What amount should Sunland Company pay for this investment in order to earn a 6% return? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answer to 2 decimal places, e.g. 5,275.25.)

Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

Amount to pay for this investment

$enter a dollar amount to pay for this investment rounded to 2 decimal places $

Answer 1

By P.V factor-

Amount will be Received = $580,000
Period = 5 years
Return = 6%

Amount to be Invested = $5,80,000 * PV of $1 (6%, 5)
Amount to be Invested= $580,000 * 0.74726
Amount to be Invested = $4,33,410.80

Sunland Company should invest today= $4,33,410.80

By F.V factor-

Future value of $1 @6% for 5 years is 1.33823

So investment required today = $5,80,000/1.33823

Amount to be Invested today= $4,33,408.31

Note- Difference in answer by both method might be slightly change due to last decimal places of P.V./F.V. value factors.

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