In seven years, when he is discharged from the Air Force, Steve wants to buy an $22,000 power boat

Exercise 13A-3 Basic Present Value Concepts [LO13-7]

In seven years, when he is discharged from the Air Force, Steve wants to buy an $22,000 power boat.

Required:

What lump-sum amount must Steve invest now to have the $22,000 at the end of seven years if he can invest money at: 

Explanation

From Exhibit 13B-1, the factor for 10% for 7 periods is 0.513. Therefore, the present value of the required investment is:

$22,000 × 0.513 = $11,286.

From Exhibit 13B-1, the factor for 12% for 7 periods is 0.452. Therefore, the present value of the required investment is:

$22,000 × 0.452 = $9,944.

Thanks