Ambrin Corp. expects to receive $2,000 at the end of each year for 10 years. Then the corporation expects to receive $3,500 per year for the following 10 years, at the end of each year. What is the approximate present value of this 20-year cash flow? Use an 8% discount rate.
A) $24,294
B) $27,870
C) $32,389
D) $2,547

Question

Quizplus · Accepted Answer

PV_A= A × PV_IFA (App. D: 8%, 10 periods) = $2,000 ×6.710 = $13,420 PV_A = A × PV_IFA (App. D: 8%, 10 periods) = $3,500 ×6.710 = $23,485× PV_IF(App. B: 8%, 10 periods) PV_IF = $23,485× (0.463) = $10,874 $13,420 + $10,874 = $24,294 OR: PV_IFA(8%, 20 periods) minus PV_IFA (8%, 10 periods) = PV_IFAyears 11 through 20 PLUS PV_IFA (8%, 10 periods)× $2,000 TOTAL of present values of both cash streams