Answer:
$114,047
Explanation:
We are required to find the amount to be Invested today (Present Value)
Summary of the Cashflows are :
Year 0 = $0
Year 1 = $0
Year 2 = $0
Year 3 = $0
Year 4 = $0
Year 5 = $25,000
Year 6 = $25,000
Year 7 = $25,000
Year 8 = $25,000
Year 9 = $25,000
Year 10 = $25,000
Year 10 = $25,000
Year 10 = $25,000
Manually
We can calculate the Net Present Value by discounting each individual payment at their appropriate period and adding up the totals to arrive at the Present Values.
PV = FV / ( 1 + R) ^ n
Where,
FV = the future cash flow stream ($25,000)
R = interest rate 8%
n = year (n = 5 for the first payment)
Financial Calculator
Alternatively we can calculate this using the CF Function of the Financial calculator as follows :
$ 0 = CFj
4 = Nj
$25,000 = CFj
8 = Nj
Shift NPV = $114,047
