Ambrin Corp. expects to receive $2,000 at the end of each year for 10 years. Then the corporation expects to receive $3,500 per year for the following 10 years, at the end of each year. What is the approximate present value of this 20-year cash flow? Use an 8% discount rate.

(A) $2.547

(B) $24,294

(C) $27,870

(D) $32,389

Question

Business

Jaiden Chen

15 September, 16:40

Ambrin Corp. expects to receive $2,000 at the end of each year for 10 years. Then the corporation expects to receive $3,500 per year for the following 10 years, at the end of each year. What is the approximate present value of this 20-year cash flow? Use an 8% discount rate.

(A) $2.547

(B) $24,294

(C) $27,870

(D) $32,389

+2

Answers (1)

Know the Answer?

Roger Burke · Answer 1

B) $24294

Explanation:

PVIFA = (1 - (1 + r) ^-n) / r

= (1 - (1 + 8%) ^-10) / 8%

= 6.710

PVIF = 0.4632

present value = (amount expected to receive for the first 10 years) * (PVIFA) + (amount expected to receive for the second 10 years) * (PVIFA) * (PVIF)

= (2000) * (6.710) + (3500) * (6.710) * (0.463)

= $24293.6

≈ $ 24294