Question #21192

What would be the present value of an item that has a salvage value of $25,000 at the end of five years? Assume a discount rate of 3.8% for an end-of-year factor.

Expert's answer

times.

If the payments are in the future, they are discounted to reflect the time value of money and other factors such as investment risk.If they are in the past, their value is correspondingly enhanced to reflect

that those payments have been (or could have been) earning interest in the

intervening time. Present value calculations are widely used in business and

economics to provide a means to compare cash flows at different times on a meaningful "like to like" basis

PV*(1+ 0,038)^5 = 25,000

PV= 25,000/(1 + 0,038)^5 = 20,746.9013.

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