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You don't need to use the annuity formula here. It is not many years of cash flow.
Do the following calculation,
I can't see it
PV = 11,000/(1.12) + 5,000/(1.12)^2 + 5,000/(1.12)^3 + 5,000/(1.12)^4 + 5,000/(1.12)^5 + 7,000/(1.12)^6
PV = $26,927.44
Let me know if you have any questions.
I basically found the present value of each cash flow and added together.
thanks but what happens if you do need to use the annuity formula?
We can use it.
But you should remember,
when we use the present value of an annuity formula,
it will give us the value in second year,
So then we need to do one more calculation to find the present value of this sum.
Let's do the annuity part separately,
5,000[ (1 - (1 / (1 + 0.12)^4)) / 0.12 ]
and is that it?
No, that's not it.
Now we need to do one more operation to find the present value of this annuity.
ahhh ok, so why is that?
the cash flow of $5,000 started in the second year.
so when you use the annuity formula you are finding the value in second year.
that is not present.
well thanks much
I just hit accept?
you need to calculate back to the present value by dividing by 1.12.