You estimate that the little drive-through coffee kiosk you own will generate ordinary annuity after-tax cash flows of $150,000 per year for the next ten years. If you discount these cash flows at an annual rate of 14%, what is the present value of your expected cash flows?
A) $782,417.35
B) $891,955.78
C) $1,500,000
D) $2,900,594.27

Question

Quizplus · Accepted Answer

The present value of an ordinary annuity can be calculated using the formula PV = C * [(1 - (1 + r)^-n) / r], where C is the cash flow per period, r is the discount rate, and n is the number of periods. Plugging in the values: PV = $150,000 * [(1 - (1 + 0.14)^-10) / 0.14] = $782,417.35.

You Estimate That the Little Drive-Through Coffee Kiosk You Own