You estimate that the drive-through coffee kiosk you own will generate ordinary annuity after-tax cash flows of $120,000 per year for the next ten years.If you discount these cash flows at an annual rate of 11%,what is the present value of your expected cash flows?
A)$706,707.84
B)$782,417.35
C)$1,200,000.00
D)$2,900,594.27

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity can be calculated using the formula PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual cash flow ($120,000), r is the annual discount rate (11% or 0.11), and n is the number of periods (10 years). Plugging these values into the formula gives a present value of approximately $706,707.84.

You Estimate That the Drive-Through Coffee Kiosk You Own Will