Chapter A, Problem A.9BE

To determine

Present value: This is the amount of future value reducedor discounted at a rate of interest till particular current date.

Formula to compute present value:

$\text{Present value of an amount = }\frac{\text{Future value}}{{\left(\text{1 + interest rate}\right)}^{\text{number}\text{of}\text{periods}}}$

Or,

$\begin{array}{l}\text{Present}\\ \text{value}\end{array}\}\text{ = }\left\{\begin{array}{l}\text{Future value × }\\ \text{Present value factor of \$1 at interest rate for time periods}\end{array}\right\}$

To determine: The amount that Company M should pay for the investment to earn an 8% return.