ABC Company sold the rights to use one of their patented processes that will res
ID: 2461477 • Letter: A
Question
ABC Company sold the rights to use one of their patented processes that will result in them receiving cash payments of $2,000 at the end of each of the next five years and a $5,000 cash payment at the end of the sixth year.
Calculate the total present value of these payments assuming the interest rate is 5% compounded annually. Do not use decimals in your answer
Use the time value of money factors posted on carmen to answer this question. To access these factors, click on content then scroll to the bottom and click on the link labeled time value of money table factors. No credit will be awarded for this question using a means other than these table factorsto answer this question.
Explanation / Answer
Present value = (PVAF@5%,5 *Annual cash flow)+(PVF@5%, *End of payment)
=(4.32948 * 2000) + (.78353 * 5000)
= 8658.95+ 3917.65
= $ 12576.60 (approx 12577)