XYZ Computer Company has developed a new line of desktop computers. It is estimated that the cash...

Question:

XYZ Computer Company has developed a new line of desktop computers. It is estimated that the cash returns generated by the new product line will be $600,000 per year for the next four years, and then $400,000 per year for two years after that (the cash returns occur at the end of each year). At a 5% interest rate, what is the present value of these cash returns?

Present Value of an Investment:

The value of money depreciates with time. Present value of any payment that occur at a later date is the value of that payment at the current date discounted at the given interest rate.

Answer and Explanation:

a. The present value of cash returns is $2,739,466.93

  • Cash flow from year 1 to 4 = $600,000
  • Cash flow in year 5 and 6 = $400,000
  • Interest rate, r =...

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Learn more about this topic:

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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