Five years ago,you paid for the right to receive twelve $25,000 annual end-of-the-year cash flows.If discounting the cash flows at an annual rate of 8%,what did you pay for these cash flows back then?
A)$474,428.16
B)$300,000.00
C)$128,223.20
D)$188,401.95

Question

Quizplus · Accepted Answer

To calculate the present value of the 12 cash flows, we need to use the formula:

PV = CF / (1+r)^n

Where:
CF = the cash flow in each period ($25,000)
r = the discount rate (8% or 0.08)
n = the number of periods (12)

So, plugging in the numbers, we get:

PV = ($25,000 / (1+0.08)^1) + ($25,000 / (1+0.08)^2) + ... + ($25,000 / (1+0.08)^12)

Using a financial calculator or Excel, we can solve for PV and get:

PV = $188,401.95

Therefore, you paid $188,401.95 five years ago for the right to receive twelve $25,000 annual end-of-the-year cash flows, discounted at a rate of 8%.

Five Years Ago,you Paid for the Right to Receive Twelve