You have the opportunity to purchase mineral rights to a property in Wyoming with expected annual cash flows of $8,000 per year for ten years.If you discount these cash flows at a rate of 12% per year,what are these cash flows worth today if the cash flows occur at the end of each period?
A)$45,201.78
B)$49,676.40
C)$80,000.00
D)$122,996.93

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual cash flow, r is the discount rate, and n is the number of periods. Plugging in the values given (PMT = $8,000, r = 0.12, n = 10), the calculation gives a present value of approximately $45,201.78.

You Have the Opportunity to Purchase Mineral Rights to a Property