If Joel earns a 10% after-tax rate of return,$10,000 received in two years is worth how much today? Use Exhibit 3.1.(Round present and future value amounts to 3 places)
A)$10,000.
B)$9,090.
C)$8,260.
D)$11,000.
E)None of the choices are correct.

Question

Quizplus · Accepted Answer

Using Exhibit 3.1, we can find the present value factor for a two-year investment with a 10% after-tax rate of return to be 0.748.

To find the present value, we divide $10,000 by the present value factor:

$10,000 ÷ 0.748 = $13,369

However, the question asks us for the value two years ago, so we need to discount this present value back two years using the discount factor of 1.210.

$13,369 × 1.210 = $16,157

Therefore, $10,000 received in two years is worth $8,260 today.

If Joel Earns a 10% After-Tax Rate of Return,$10,000 Received