Question

You just signed a consulting contract that will pay you $38,000, $52,000, and $85,000 annually at the end of the next three years, respectively.
What is the present value of these cash flows given a discount rate of 10.5%?

Answer 1

Answer:

The present value of these cash flows is $139975.08

Explanation:

Given:

Annually cash $P = \ 38000 , \ 52000 , \ 85000$

Discount rate $I= 10.5\% = 0.105$

From the formula of present value,

   $A = \frac{P}{(1 + I)^{n} }$

Where $n = 1,2,3.......$

    $A = \frac{38000}{(1 + 0.105)^{1} } + \frac{52000}{(1+0.105)^{2} } + \frac{85000}{(1 + 0.105 )^{3} }$

By calculating above equation we get present value of cash,

    $A = \ 139975.08$

Therefore, the present value of these cash flows is $139975.08