An investment will pay $16,400 at the end of each year for eight years and a one-time payment of $164,000 at the end of the eighth year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Determine the present value of this investment using a 6% annual interest rate.

The present value of this investment is $204,737

Explanation:

Investment Involves two payment $16,400 every year and $164,000 once after eighth year.

Payment of $16,400 at the end of each year for 8 years is an annuity which is discounted at 6%.

Present value of this annuity

Present value of annuity = P [ 1 - ( ( 1 + r )^-n ) / r ]

Where

P = $16,400

r = 6%

n = 8 years

Present value of annuity = $16,400 [ 1 - ( ( 1 + 6% )^-8 ) / 6% ]

Present value of annuity = $101,841

Now calculate the present value of single payment of $164,000 at the end of eighth year.

Present value = FV / ( 1 + r )^n

Present value = $164,000 / ( 1 + 6% )^8 = $102,896

Present value of Investment = $101,841 + $102,896 = $204,737

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