You are paid to teach graduate-level classes for the university and want to determine how much money the university makes from your graduate-level classes.Based on historical data,you estimate that your graduate classes for the next six years will generate an average annual revenue of $99,850.If you discount these cash flows at an annual rate of 7.30%,what is the present value of the expected cash flows?
A)$895,133.52
B)$483,644.36
C)$471,562.95
D)$423,786.85

Question

Quizplus · Accepted Answer

We can use the formula for present value of an annuity:

PV = C * [(1 - (1+r)^-n)/r]

PV = present value
C = average annual revenue = $99,850
r = discount rate = 7.30% = 0.073
n = number of periods = 6

Plugging in the values, we get:

PV = $99,850 * [(1 - (1+0.073)^-6)/0.073]
PV = $471,562.95

Therefore, the present value of the expected cash flows is $471,562.95.

Choice C is the best choice.

You Are Paid to Teach Graduate-Level Classes for the University