Ransport Company has made an investment in another company that will guarantee it a cash flow of $37,250 each year for the next five years. If the company uses a discount rate of 15 percent on its investments, what is the present value of this investment? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To calculate the present value of the investment, we need to use the formula:

PV = CF / (1 + r)^n

where PV is the present value, CF is the cash flow, r is the discount rate, and n is the number of periods.

Plugging in the values we have:

PV = $37,250 / (1 + 0.15)^1 + $37,250 / (1 + 0.15)^2 + $37,250 / (1 + 0.15)^3 + $37,250 / (1 + 0.15)^4 + $37,250 / (1 + 0.15)^5

PV = $124,868 (rounded to the nearest dollar)

Therefore, the best choice is B, because it is the present value of the investment using a discount rate of 15 percent.

Ransport Company Has Made an Investment in Another Company That