Below is a table for the present value of $1 at compound interest. Below is a table for the present value of an annuity of $1 at compound interest.
Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%)?

Question

Below is a table for the present value of $1 at compound interest.  Below is a table for the present value of an annuity of $1 at compound interest.
 Using the tables above, if an investment is made now for $20,000 that will generate a cash inflow of $7,000 a year for the next 4 years, what would be the present value (rounded to the nearest dollar) of the investment cash inflows, (assuming an earnings rate of 12%)?

Quizplus · Accepted Answer

Using the present value of an annuity of $1 at compound interest table, we can find the factor for 12%, 4 years, and 1 dollar per year as 3.03735.

Next, we can multiply this factor by the annual cash inflow of $7,000 to find the present value of each cash inflow:

$7,000 x 3.03735 = $21,262.45

Finally, we can add up the present values of each cash inflow:

$21,262.45 x 0.94281 (the factor for present value of $1 at 12% and 4 years) = $20,046.91

Rounding to the nearest dollar, the present value of the investment cash inflows is $21,259 (Option D).

Below Is a Table for the Present Value of $1