What Is the Present Value of a $1,000 Per Year

question 92

Multiple Choice

What is the present value of a $1,000 per year annuity for five years at an interest rate of 12 percent?

• A)$6,352.85
• B)$3,604.78
• C)$567.43
• D)$2,743.28

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Definitions:

IRR

Internal Rate of Return; a financial metric used to estimate the profitability of potential investments, calculated as the rate of return that sets the net present value of all cash flows from a particular project equal to zero.

Equivalent Annual Annuity

A financial calculation used to compare projects with different lifespans, by converting their net present values into equal yearly payments.

Cost of Capital

The essential yield required to validate the investment in a project involving capital budgeting, like erecting a new manufacturing plant.

Mutually Exclusive

Situations or options that cannot occur or be chosen at the same time, often requiring a choice to be made between them for decision-making purposes.