Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of
her royalty income if the opportunity cost is 12 percent
1 answer:
Answer:
$67,800
Explanation:
We can use annuity formula to find the present value of the royalties received for the upcoming ten years.
The annuity formula used here is attached with the answer.
The first step would be finding annuity factor at 12%.
So
Annuity Factor = (1-(1+r)^-n) / r
By putting values, we have:
Annuity Factor = (1 - (0.322)) / 0.12 = 5.65
Present Value = Annual Cash flow * Annuity Factor
PV = $12,000 * 5.65 = $67,800
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