Garretson Corporation will receive $10,000 today (January 1, 2010), and also on each January 1st for the next five years (2013 - 2017).What is the present value of the six $10,000 receipts, assuming a 12% interest rate?

Question

Quizplus · Accepted Answer

To calculate the present value of multiple future cash flows, we use the formula:

PV = CF1 / (1+r)^1 + CF2 / (1+r)^2 + ... + CFn / (1+r)^n

where PV is the present value, CF is the cash flow in a given period (year), r is the interest rate, and n is the total number of periods.

Using this formula, we can calculate the present value of the six $10,000 receipts as:

PV = 10,000/(1+0.12)^1 + 10,000/(1+0.12)^2 + 10,000/(1+0.12)^3 + 10,000/(1+0.12)^4 + 10,000/(1+0.12)^5 + 10,000/(1+0.12)^6

= $81,152.

Therefore, the answer is option C, $81,152.

Garretson Corporation Will Receive $10,000 Today (January 1, 2010), and Also