Your manufacturing firm has just secured a sale to the federal government with payment of $480,000 due in nine months.You have asked your bank for cash today with the stipulation that you will give the proceeds from the government contract to the bank in nine months.The bank has agreed to your request if you allow them to discount the cash flows at an annual rate of 6%.How much will the bank pay you today under this agreement?
A)$459,475
B)$466,889
C)$476,739
D)$480,000

Question

Quizplus · Accepted Answer

The bank will pay today the present value of $480,000 due in nine months, discounted at an annual rate of 6%. The formula for present value is PV = FV / (1 + r)^n, where FV is the future value ($480,000), r is the annual discount rate (6% or 0.06), and n is the time in years (9/12 or 0.75 years). Plugging in the numbers: PV = $480,000 / (1 + 0.06)^0.75 = $459,475.

Your Manufacturing Firm Has Just Secured a Sale to the Federal