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You are valuing an investment that will pay you $12,000 the first year, $14,000 the second year, $17,000 the third year, $19,000 the fourth year, $23,000 the fifth year, and $29,000 the sixth year (all payments are at the end of each year). What it the value of the investment to you now is the appropriate annual discount rate is 11.00%?

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facundobuzzetti

Answer:

Total present value= $76,309.62

Explanation:

Giving the following information:

Cf1= $12,000

Cf2= $14,000

Cf3= $17,000

Cf4= 19,000

Cf5= $23,000

Cf6= $29,000

Discount rate= 0.11

We need to use the following formula on each cash flow:

PV= FV/(1+i)^n

Cf1= 12,000/1.11= 10,810.81

Cf2= 14,000/1.11^2= 11,362.71

Cf3= 17,000/1.11^3= 12,430.25

Cf4= 19,000/1.11^4= 12,515.89

Cf5= 23,000/1.11^5= 13,649.38

Cf6= 29,000/1.11^6= 15,540.58

Total present value= $76,309.62

The  value of the investment to you now  is $76,309.62

Calculation of the present value of an investment:

Here the following formulas should be used:

PV= [tex]FV\div (1+i)^n[/tex]

Cf1=[tex]12,000\div 1.11[/tex]= 10,810.81

Cf2= [tex]14,000\div 1.11^2[/tex]= 11,362.71

Cf3= [tex]17,000\div 1.11^3[/tex]= 12,430.25

Cf4= [tex]19,000\div 1.11^4[/tex]= 12,515.89

Cf5= [tex]23,000\div 1.11^5[/tex]= 13,649.38

Cf6= [tex]29,000\div 1.11^6[/tex]= 15,540.58

So,

Total present value= $76,309.62

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