Mustard's Inc. sold the rights to use one of their patented processes that will result in cash receipts of $2,500 at the end of each of the next four years and a lump sum receipt of $4,000 at the end of the fifth year. The total present value of these payments if interest is at 9% is:
A)$10,699.
B)$11,468.
C)$12,100.
D)$14,000.

Question

Quizplus · Accepted Answer

The present value of an annuity of $2,500 for four years at 9% is calculated using the present value of annuity formula. The present value of a lump sum of $4,000 at the end of the fifth year is calculated using the present value formula for a single sum. Adding these two present values gives the total present value of $10,699.