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present value
Question;
The present value of the machine will be the discounted value of the future cash flows that is expected to generate. If the machine is expected to generate $500000 per annum for the remaining eight years of its life and if the company’s cost of capital is 10%, present value will be calculated as?Please solve for me the question above… Thank you
To answer this you need to look up the annuity factor in an annuity table. For 8 years @ 10% this is 5.335. So the answer is $500,000 * 5.335 = $2,667,500
However, this is not an F7 question, you will not be asked to calculate complex PVs in this exam and you will not be given annuity tables in the formulae. This is more of an F9 question.
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