Using the Following Table, What Is the Present Value of $40,000

question 45

Short Answer

Using the following table, what is the present value of $40,000 to be received in 5 years, if the market rate is 7% compounded annually? $$\begin{array} { | l | c | c | c | c | } \hline \text { Periods } & 5 \% & 6 \% & 7 \% & 10 \% \\\hline 1 & 0.95238 & 0.94340 & 0.93458 & 0.90909 \\\hline 2 & 0.90703 & 0.89000 & 0.87344 & 0.82645 \\\hline 3 & 0.86384 & 0.83962 & 0.81630 & 0.75132 \\\hline 4 & 0.82270 & 0.79209 & 0.76290 & 0.68301 \\\hline 5 & 0.78353 & 0.74726 & 0.71299 & 0.62092 \\\hline 6 & 0.74622 & 0.70496 & 0.66634 & 0.56447 \\\hline 7 & 0.71068 & 0.66506 & 0.62275 & 0.51316 \\\hline 8 & 0.67684 & 0.62741 & 0.58201 & 0.46651 \\\hline 9 & 0.64461 & 0.59190 & 0.54393 & 0.42410 \\\hline 10 & 0.61391 & 0.55840 & 0.50835 & 0.38554 \\\hline\end{array}$$

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Definitions:

Contribution Margin

The difference between a company's total sales revenue and its variable costs.

Fixed Costs

Expenses that remain constant for a certain level of production or period, inclusive of rent, salaries, and insurance.

Financial Advantage

The benefit gained when financial resources are managed to maximize efficiency and profitability.

Contribution Margin

The margin between the income from sales and the costs that vary, illustrating the amount of revenue available for offsetting fixed expenses and yielding a profit.