### Present Value Calculation for Future Cash Flows#### Problem StatementAssume 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.#### QuestionIt would be worth _______ in today's dollars (rounded to the nearest dollar).Options:- $240,000- $179,352- $56,975- $321,156#### Explanation1. **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.

Time value of money :— According to this concept, value of money in present day is greater than the…

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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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