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A wealthy man just died and left his pet dogs the following estate: $20,000 per year for the next 11 years with the first cash flow today. at a discount rate of 4. 2%, what is the doggy estate worth in today's dollars?

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ajeigbeibraheem

The concept of present value lets us know that the doggy estate worth in today's dollars is $180614.80

What is the present value of the doggy estate worth?

The concept of present value is significant because it enables investors to determine whether the amount they pay for an investment is reasonable. The present value of a future cash flow defines how much it is worth in today's value.

From the given information:

  • The annual cashflow C = $20,000
  • Interest rate (i) = 4.2% = 0.042
  • Number of period (n) = 11

Thus, the present value of the doggy estate can be calculated by using the formula;
[tex]\mathbf{PV = C \times \Big [ \dfrac{1 - \dfrac{1}{(1+i)^n}}{i}\Big] \times (1+i)}[/tex]

[tex]\mathbf{PV = 20000 \times \Big [ \dfrac{1 - \dfrac{1}{(1+0.042)^{11}}}{0.042}\Big] \times (1+0.042)}[/tex]

PV = $180614.80


Learn more about how to calculate the Present value here:

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