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What is the present value of $318,102 to be received 12 years from now discounted back to the...

Question:

What is the present value of $318,102 to be received 12 years from now discounted back to the present at 7% compounded annually? Round to two decimal places.

Present Value of Investment:

Any cash flow that is to be received in the future needs to be discounted to present value in accordance with the concept of time value of money. Since money has earnings power, the true worth of future cash flow can only be determined after discounting back to present value at an appropriate discount rate. For the same future cash flow, higher the discount rate, lower is the present value.

Answer and Explanation:

.

Given -

  • Future Value (FV) = $318,102
  • Time (t) = 12 Years
  • Discount Rate = 7% = 0.07

The formula to calculate the present value is as follows -

  • Present Value = {eq}FV / ( 1 + r ) ^ t {/eq}
  • Present Value = {eq}318102 / ( 1 + 0.07 ) ^ 12 {/eq}
  • Present Value = {eq}141,241.09 {/eq}

Learn more about this topic:

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How to Calculate Present Value of an Investment: Formula & Examples

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 15
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