Assume you receive $240,000 in five years and the annual interest rate is six percent. Factors for a six percent interest rate for five years are shown below: Present Value of $1 Present Value of an Annuity 4.2124 0.7473 It would be worth___. in today's dollars (rounded to the nearest dollar). $240,000 $179,352 $56,975 $321,156
Assume you receive $240,000 in five years and the annual interest rate is six percent. Factors for a six percent interest rate for five years are shown below: Present Value of $1 Present Value of an Annuity 4.2124 0.7473 It would be worth___. in today's dollars (rounded to the nearest dollar). $240,000 $179,352 $56,975 $321,156
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![### Present Value Calculation for Future Cash Flows
#### Problem Statement
Assume you receive $240,000 in five years and the annual interest rate is six percent. To find out how much that amount is worth in today's dollars, we use present value factors. The factors for a six percent interest rate over five years are provided in the table below:
| Calculation Type | Factor |
|-------------------------------|----------|
| Present Value of $1 | 0.7473 |
| Present Value of an Annuity | 4.2124 |
Using this information, we aim to determine the present value of $240,000 received in five years.
#### Question
It would be worth _______ in today's dollars (rounded to the nearest dollar).
Options:
- $240,000
- $179,352
- $56,975
- $321,156
#### Explanation
1. **Understand the Calculation Type:**
- Since we are dealing with a single future amount, we use the “Present Value of $1” factor.
2. **Formula for Present Value:**
\[ PV = FV \times \text{Present Value Factor} \]
Where:
- \( PV \) = Present Value
- \( FV \) = Future Value
- Present Value Factor = 0.7473 (for $1 at 6% interest rate over 5 years)
3. **Calculate:**
\[ PV = 240,000 \times 0.7473 \]
\[ PV = 179352 \]
Therefore, the present value of $240,000 received in five years at a 6% annual interest rate is **$179,352**.
This numerical value confirms that $240,000 in five years is equivalent to $179,352 in today's dollars rounded to the nearest dollar.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff523dc8a-9051-46da-af12-e46643d993ab%2F72191c43-0a75-4a55-bc42-d9eb420c7e37%2F3of3ile_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Present Value Calculation for Future Cash Flows
#### Problem Statement
Assume you receive $240,000 in five years and the annual interest rate is six percent. To find out how much that amount is worth in today's dollars, we use present value factors. The factors for a six percent interest rate over five years are provided in the table below:
| Calculation Type | Factor |
|-------------------------------|----------|
| Present Value of $1 | 0.7473 |
| Present Value of an Annuity | 4.2124 |
Using this information, we aim to determine the present value of $240,000 received in five years.
#### Question
It would be worth _______ in today's dollars (rounded to the nearest dollar).
Options:
- $240,000
- $179,352
- $56,975
- $321,156
#### Explanation
1. **Understand the Calculation Type:**
- Since we are dealing with a single future amount, we use the “Present Value of $1” factor.
2. **Formula for Present Value:**
\[ PV = FV \times \text{Present Value Factor} \]
Where:
- \( PV \) = Present Value
- \( FV \) = Future Value
- Present Value Factor = 0.7473 (for $1 at 6% interest rate over 5 years)
3. **Calculate:**
\[ PV = 240,000 \times 0.7473 \]
\[ PV = 179352 \]
Therefore, the present value of $240,000 received in five years at a 6% annual interest rate is **$179,352**.
This numerical value confirms that $240,000 in five years is equivalent to $179,352 in today's dollars rounded to the nearest dollar.
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