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Math Help - Business Stats

  1. #1
    ek4 phil
    Guest

    Business Stats

    Hey guys just wondering if you could help me figure this one out?

    An asset purchased at the beginning of the financial year is expected to return $5000 at the end of the current financial year, $10000 at the end of the next financial year and $15000 at the end of the following financial year. Determine the present value of these expected returns, assuming capital can be invested at 6% per annum, payable quarterly.

    I already have the answer of $26133.84
    I need assistance with the working out to get the answer?
    The Present value formula is P= R(1-(1+i)^-n)/i
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  2. #2
    MHF Contributor
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    Why do you need a formula for a series of equal payments to compute the present value of three unequal cash flows? You seem to be missing something on this assignment.

    APR = 0.06
    Compounded Quarterly: 0.06/4 = 0.015
    Quarterly Discount: 1/1.015 = 0.985221675 = QD
    Annual Discount: QD^{4} = 0.942184230 = v
    Calculate: 5000v + 10000v^{2} + 15000v^{3}

    Alternatively, and maybe a little cleaner.
    APR = 0.06
    Compounded Quarterly: 0.06/4 = 0.015
    Quarterly Discount: 1/1.015 = QD = v^{(4)}
    Calculate: 5000[v^{(4)}]^{4} + 10000[v^{(4)}]^{8} + 15000[v^{(4)}]^{12}

    Even if you get this, you may wish to review a section or two and make sure you know where you are headed.
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