Today is 1/1/2009. for 20 years, i receive $50,000 on the first day of each year and $25,000 on the first of july each year. if i discount cash flows at 10% annually, what is the present value (rounded to the nearest thousand dollars) of these payments?

Solution:

Cash Flow(F )= $ 50,000

Rate = 10 %

Discounted Cash Flow of amount $50,000 (D)=

As, this is a geometric Progression.

Formula for Sum of n terms of geometric Progression having common ratio r,

For, r < 1 and

for , r>1

If cash flow(K) = $ 25,000

Then at the rate of 10 % ,

Value after 20 years is given by:

Discounted Cash Flow of amount $25,000 (D)=

for , r>1, formula for sum of n terms of geometric series

.632

step-by-step explanation:

6 * 1/10 = 3/5

3*0.01 = 0.03

3/5 + 0.03 = .63

2*0.002 = .002

.63 + 0.002 = .632