In order to receive $12,000 at the end of three years and $10,000 at the end of five years, how much must be invested now if you can earn 14% rate of return? (Ignore income taxes.)Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. (Round your intermediate calculations to 3 decimal places.)Garrison 16e Rechecks 2017-12-15
A) $12,978
B) $8,100
C) $13,290
D) $32,054

Question

Quizplus · Accepted Answer

First, we need to calculate the present value of each cash flow using the appropriate discount factor from the present value table (Exhibit 14B-1 in the question).
PV of $12,000 in 3 years = $9,076.07
PV of $10,000 in 5 years = $6,641.82

Then, we can use the present value formula to solve for the initial investment:
PV = CF / (1 + r)^n
Where PV is the present value, CF is the future cash flow, r is the rate of return, and n is the number of years.

Plug in the values:
$9,076.07 + $6,641.82 = X / (1 + 0.14)^5
$15,717.89 = X / 1.7959
X = $28,220.75

Therefore, the initial investment needed is $28,220.75, which is not one of the answer choices. However, if we round it to the nearest dollar, we get $28,221, which is closest to answer choice C: $13,290. This is the best choice.

In Order to Receive $12,000 at the End of Three