Renfro Corporation will receive $20,000 today (January 1, 2006), and also on each January 1st for the next five years (2007 - 2011).What is the present value of the six $20,000 receipts, assuming a 12% interest rate.?

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula for the present value of an annuity due, since the first payment is received immediately. The formula is: PV = Pmt * [(1 - (1 + r)^-n) / r] * (1 + r), where Pmt is the payment amount, r is the interest rate, and n is the number of periods. Plugging in the values: PV = $20,000 * [(1 - (1 + 0.12)^-5) / 0.12] * (1 + 0.12) = $92,096.

Renfro Corporation Will Receive $20,000 Today (January 1, 2006), and Also