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42) Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur. In exchange for the family business, Joe has been offered an immediate payment of $100,000. Joe will also receive payments of $50,000 in one year, $50,000 in two years, and $75,000 in three years. The current market rate of interest for Joe is 6%. In terms of present value (PV), how much will Joe receive for selling the family business? A) $245,641 B) $254,641 C) $641,254 D) $254,461

Respuesta :

facundobuzzetti

Answer:

Total PV= $254,641.08

Option B.

Explanation:

Giving the following information:

Cash flows:

Cf0= $100,000

Cf1= 50,000

Cf2= 50,000

Cf3= 75,000

Interest rate= 6%

To calculate the present value, we need to use the following formula on each cash flow:

PV= FV/(1+i)^n

Cf0= 100,000

Cf1= 50,000/1.06= 47,169.81

Cf2= 50,000/1.06^2= 44,499.82

Cf3= 75,000/1.06^3= 62,971.45

Total PV= $254,641.08

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