Question

2. The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is a. 9%

Answer 1

$7721.83

Step-by-step explanation:

the worth of the note today can be determined by calculating the present value of the cash flows

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 and 2 = 0

Cash flow in year 3 = 10,000

I = 9%

PV = $7721.83

To determine the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute