You win the lottery and must decide how to take the payout. Use a 10 % discount rate. What is the present value of $ 12 comma 000 a year received at the end of each of the next five years?

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Business

Lynn

6 January, 02:01

You win the lottery and must decide how to take the payout. Use a 10 % discount rate. What is the present value of $ 12 comma 000 a year received at the end of each of the next five years?

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Danna Blanchard · Answer 1

PV = $45,489.44

Explanation:

Giving the following information:

Discount rate = 10%

Cash flow = $12,000

Number of years = 5

First, we need to calculate future value. We will use the following formula:

FV = {A*[ (1+i) ^n-1]}/i

A = annual cash flow

FV = {12,000*[ (1.1^5) - 1]} / 0.1

FV = $73,261.2

Now, the present value:

PV = FV / (1+i) ^n

PV = 73,261.2/1.1^5

PV = $45,489.44