Your manufacturing firm has just secured a sale to the federal government with payment of $450,000 due in nine months.You have asked your bank for cash today with the stipulation that you will give the proceeds from the government contract to the bank in nine months.The bank has agreed to your request if you allow them to discount the cash flows at an annual rate of 8%.How much will the bank pay you today under this agreement?
A)$424,761
B)$423,889
C)$476,739
D)$450,000

Question

Quizplus · Accepted Answer

We need to find out the present value of the cash inflows that will come after nine months. The formula for present value is:

Present Value = Future Value / (1 + r)^n

where:
r = annual interest rate
n = number of years

Plugging in the values:

Present Value = 450,000 / (1 + 0.08/12)^9*12
Present Value = 424,761.26

Therefore, the bank will pay $424,761.26 today to the manufacturing firm. Option A is the correct answer.

Your Manufacturing Firm Has Just Secured a Sale to the Federal