Question

Derek has the opportunity to buy a money machine today. The money machine will pay Derek $27,509.00 exactly 6.00 years from today. Assuming that Derek believes the appropriate discount rate is 12.00%, how much is he willing to pay for this money machine?

Answer 1

Answer:

Present value = $13936.91

Explanation:

given data

machine will pay = $27,509

time = 6 year

discount rate = 12.00%

to find out

how much is he willing to pay for money machine

solution

we get here present value of machine today that is express as

Present value = Future value ÷ $(1+discount\ rate)^{time}$   .................1

put here value we get

Present value = $\frac{27509}{(1+.12)^6}$  

Present value = $13936.91