Question

Fishermen’s Corp. is considering purchasing a boat. If the boat was purchased, it is expected to receive $20,000 at the end of the first year, $40,000 at the end of the second year, and $60,000 at the end of the third year within its business.
What is the boat worth to Fishermen’s Corp today, assume an 8% discount rate.
$120,000$100,440$47,640$98,756

Answer 1

Answer:

The boat today is worth 100,440 dollars

Explanation:

We need to solve for the present value of the payment Fishermen's Corp will receive for the boat:

We will apply the formula for lump sum to each $\frac{Maturity}{(1 + rate)^{time} } = PV$  

cash flow and then add them together

$\frac{20,000}{(1 + 0.08)^{1} } = PV$  

$\frac{40,000}{(1 + 0.08)^{2} } = PV$  

$\frac{60,000}{(1 + 0.08)^{3} } = PV$  

Year Nominal     Present Value

1 20000  18, 518

2 40000 34,293

3 60000 47,630

TOTAL            100,441