A company has just sold a product with the following payment plan: $75,000 today, $50,000 at the end of year 1, and $25,000 at the end of year two. If the payments
Are deposited into an account earning 4.5% per year, calculate the present value for the cash ﬂow.

Question

Quizplus · Accepted Answer

The present value is calculated by discounting each cash flow to the present using the formula PV = FV / (1 + r)^n. The present value of $75,000 today is $75,000. The present value of $50,000 at the end of year 1 is $50,000 / (1 + 0.045)^1 = $47,847. The present value of $25,000 at the end of year 2 is $25,000 / (1 + 0.045)^2 = $22,893. Adding these gives a total present value of $145,740.

A Company Has Just Sold a Product with the Following