Question

There is an investment with the discount rate of 6 %. What should be the present value of the investment if we want to get a net cash flow of $17500;

a) After 1 year
b) After 2 years
c) After 3 years

Answer 1

a. $16,509.434

b. $15,574.94

c. $14,693.34

Step-by-step explanation:

The calculation of the present value for the following cases is

we know that

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

a. After one year

= $17,500 ÷ (1 + 0.06)^1

= $16,509.434

b. After 2 years

= $17,500 ÷ (1 + 0.06)^2

= $17,500 ÷ 1.1236

= $15,574.94

c. After 3 years

= $17,500 ÷ (1 + 0.06)^3

= $17,500 ÷ 1.191016

= $14,693.34

Therefore, the present value after one year, 2 years and third year is $16,509.434 ,$15,574.94 and $14,693.34 respectively