Personal Finance 1st Edition by Jack R. Kapoor

Exercise 31

Calculating the Present Value of Future Cash Flows. A financial company advertises on television that they will pay you $60,000 now in exchange for annual payments of $10,000 that you are expected to receive for a legal settlement over the next 10 years. If you estimate the time value of money at 10 percent, would you accept this offer? (Obj. 4)

Step 1 of 2

Acceptance of this offer will be depend up on Present Value of $10,000 expected to receive over the next 10 years with estimated time value of money at 10 percent. So, first we have to find the Present Value of annuity by using following formula:

Where,