Jim sold a car and accepted a note promising cash flows of $1,000 at the end of Year 1, and $2,000 at the end of Years 2, 3 and 4 as his payment. What was the effective price he received for the car, assuming an interest rate of 8.30%? Your answer should be between 4,715.00 and 6,525.00, rounded to 2 decimal places, with no special characters.

Jim sold a car and accepted a note promising cash flows of $1,000 at the end of Year 1, and $2,000 at the end of Years 2, 3 and 4 as his payment. What was the effective price he received for the car, assuming an interest rate of 8.30%? Your answer should be between 4,715.00 and 6,525.00, rounded to 2 decimal places, with no special characters.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 4MC: Refer to the present value table information on the previous page. What amount should Brett have in...

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Question

Jim sold a car and accepted a note promising cash flows of $1,000 at the end of Year 1, and $2,000 at the end of Years 2, 3,
and 4 as his payment. What was the effective price he received for the car, assuming an interest rate of 8.30%?
Your answer should be between 4,715.00 and 6,525.00, rounded to 2 decimal places, with no special
characters.

Expert Solution

Introduction,

The difference between the current value of cash inflows and outflow of cash over a period of time is known as net present value (NPV). The net present value (NPV) is a calculation used in capital budgeting and investment planning to determine the profitability of a proposed investment or project and any project or investment with a negative NPV should be avoided since it is based on a discount rate that may be determined from the cost of capital necessary to undertake the venture.

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