If Lucy earns a 7 percent after-tax rate of return, $27,000 received in four years is worth how much today? Use Exhibit 3.1. (Round discount factor(s)to three decimal places.)
A)$27,000
B)$25,134
C)$29,399
D)$20,601
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

To find the present value of $27,000 received in four years at a 7 percent after-tax rate of return, we use the formula for present value: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($27,000), r is the annual interest rate (7% or 0.07), and n is the number of years (4). The discount factor for 7% over 4 years can be calculated as 1 / (1 + 0.07)^4, which approximately equals 0.7639 when rounded to four decimal places. Therefore, the present value is $27,000 * 0.7639 = $20,605.3, which when rounded to the nearest dollar, is closest to $20,601.

If Lucy Earns a 7 Percent After-Tax Rate of Return