One year from today, Daisy Swaine is scheduled to receive a $40,000 payment from a trust fund her father established. She wants to buy a car today but does not have the money. A friend has agreed to give Daisy the present value of the $40,000 today if she agrees to give him the full $40,000 when she collects it one year from now. They agree that 8 percent reflects a fair discount rate.

Round your computations to the nearest whole dollar.
a. You have been asked to determine the present value of the future cash flow. Use a present value table to determine the amount of cash that Daisy’s friend should give her.
b. Use an algebraic formula to verify the result you determined in Requirement a.

  • CreatedFebruary 07, 2014
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