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You just signed a consulting contract that will pay you $38,000, $42,000, and $45,000 annually at the end of the next three years, respectively. What is the present value of this contract given a discount rate of 10.5?

(A) $102138.76
(B) $108.30767
(C) $112860.33
(D) $92433.27
(E) $96.422.15

Respuesta :

Answer:

A: $102138.76

Explanation:

Since there are uneven cash flows, we will have to calculate each cash flow separately for that year.

Formula:

PV = [tex]\frac{CF}{(1+r)^n} + \frac{CF}{(1+r)^n} +\frac{CF}{(1+r)^n}[/tex]

Where;

  • CF = Cash flows.
  • r = Discount rate.
  • n = number of period.

Putting the values in the formula we get;

PV = [tex]\frac{38,000}{(1+0.105)^1} + \frac{42,000}{(1+0.105)^2} +\frac{45,000}{(1+0.105)^3} =[/tex] $102138.76

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