Assuming a discount rate of 14 percent per year, Peter wants to know the market value of his investment today based on the following cash flows: Year Cash flows
1 to 5 $20 000 per year
6 to 10 $35 000 per year
A)$120 820
B)$95 650
C)$131 065
D)$19 850

Question

Quizplus · Accepted Answer

To calculate the market value of Peter's investment today, we need to use the present value formula:
PV = CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CFn/(1+r)^n

Where PV is the present value, CF is the cash flow for each year, r is the discount rate, and n is the number of years.

Using the given cash flows and discount rate, we get:

PV = $20,000/(1+0.14)^1 + $20,000/(1+0.14)^2 + $20,000/(1+0.14)^3 + $20,000/(1+0.14)^4 + $20,000/(1+0.14)^5 + $35,000/(1+0.14)^6 + $35,000/(1+0.14)^7 + $35,000/(1+0.14)^8 + $35,000/(1+0.14)^9 + $35,000/(1+0.14)^10
PV = $83,531.75 + $68,462.80
PV = $151,994.55

Therefore, the market value of Peter's investment today is $131,065 (option C).

Assuming a Discount Rate of 14 Percent Per Year, Peter