Over the next four years, the City of Mythica, New York, is expecting the following cash flows from a federal grant: year 1-$150,000; year 2-$220,000; year 3-$250,000; year 4-$175,000. The city wants to use the grant as collateral for a loan, but it is unsure about its net present value. What is the net present value of the grant if the rate of return is expected to be 5 percent? What if the rate of return is expected to be 8 percent? Use Exhibit 26-3 for your solution.
Exhibit 26-3: Present Value of $1 Payable in n Periods

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Present Value of $1 Due In n Perlods* Discount Rate Number of Perlods 1% 990 980971 971 .956864 840794 751 712 .658 579 961 942823 .792 735 683 636 .572 482 951 942915 .746 .705 630 564 507 432 335 933 .901 .711.665 583 513 452 376 279 923 914 905862 614 .558 463 386 322 247 .162 820 742 .377312 215 149 .104 .061 026 788 .700 310 247 158 102 066 035 .013 699 1%% 5% 952 907 6% 8% 926 857 826 10% 15% 20% 833 .797 756 694 12% 985 943 909 893 87 0 2 3 4 5 6 928 .784 747 621 567 497 402 677 627 645 540 467 500424 361 404 327 284 233 194 9 10 20 875 592 36 585 173 123 063 .032 .017 007 001