ABC corp. expects to receive $2000 per year for years and $3500 per year for the next 10 years. what is the percentage value of this 20 years cash flow? use an 7% discount rate
It would help if you proofread your questions before you posted them.
"...$2000 per year for ? years...."
To calculate the present value of the cash flow using a discount rate, we need to discount each cash flow to its present value and then sum them up.
Let's break down the calculation for the given cash flows:
1. Calculate the present value of the $2000 per year for the first 10 years:
To find the present value of an annuity, we can use the formula:
PV = P * (1 - (1 + r)^(-n)) / r
Where:
PV is the present value
P is the annual cash flow
r is the discount rate
n is the number of years
PV1 = 2000 * (1 - (1 + 0.07)^(-10)) / 0.07
2. Calculate the present value of the $3500 per year for the next 10 years:
Using the same formula as above but with different values:
PV2 = 3500 * (1 - (1 + 0.07)^(-10)) / 0.07
3. Calculate the total present value by adding PV1 and PV2:
Total PV = PV1 + PV2
Finally, to find the percentage value of the cash flow, we divide the total present value by the sum of all the cash flows and multiply by 100:
Percentage Value = (Total PV / (10 * 2000 + 10 * 3500)) * 100
Let's calculate it:
PV1 = 2000 * (1 - (1 + 0.07)^(-10)) / 0.07
PV2 = 3500 * (1 - (1 + 0.07)^(-10)) / 0.07
Total PV = PV1 + PV2
Percentage Value = (Total PV / (10 * 2000 + 10 * 3500)) * 100