Question

Derek has the opportunity to buy a money machine today. The money machine will pay Derek $17,852.00 exactly 3.00 years from today. Assuming that Derek believes the appropriate discount rate is 9.00%, how much is he willing to pay for this money machine?

Answer 1

$13,785

Step-by-step explanation:

The computation of the amount to be paid for the money machine is shown below:

As we know that

Present value = Future value ÷ (1 + rate of interest)^number of years

= $17,852 ÷ (1 + 0.09)^3

= $17,852 ÷ 1.09^3

= $13,785