Present value of an annuity, Financial Accounting

Assignment Help:

Let us assume you expect to obtain Rs.2000 yearly for the next three years. The receipt of Rs.2000 is evenly divided. One part that is: Rs.1000 is obtained at the beginning of the year and the remaining Rs.1000 is received on the end of the year. We are interested in understanding the present value while the discount rate is 10%. The cash flows declared above are of two types that are similar to annuity due and regular annuity. The present value of such cash flow is determined as follows:

a) Present value of Rs.1000 obtained at the end of each year for three years as Regular annuity.

Rs. 1000 (1/ 1.10) + Rs.1000 (1/ 1.10)2 + Rs.1000 (1/ 1.10)3

= (1000 * 09091) + (1000 * 08264) + (1000 + 0.7513)

= Rs.2479.

b) Present value of Rs.1000 obtained at the starting of each year for three yearas annuity due

= Rs. 1000 + Rs. 1000 (1/ 1.10) + Rs.1000 (1/ 1.10)2

= 1000 + (1000 * 09091) + (1000 + 08264)

= Rs.2735

The present value of such annuity = Rs. 2479+Rs.2735 = Rs. 5214.


Related Discussions:- Present value of an annuity

Presumption of survivorship, PRESUMPTION OF SURVIVORSHIP Where two or m...

PRESUMPTION OF SURVIVORSHIP Where two or more persons have died in circumstances rendering it uncertain which of them survived the other or others, the deaths shall, for all pu

What is capital expenditure, Calculat capital expenditure, How to define Ca...

Calculat capital expenditure, How to define Capital expenditure This is kind of expenditure on fixed assets like as plant or equipment, the cost of which is spread over several

Personal representatives duties-executorship law, Personal representatives ...

Personal representatives duties Personal representation has the following duties; 1) To provide and pay out of the estate of the deceased, the expenses of a reasonable funeral

What do you mean by suspense account, Q. What do you mean by suspense accou...

Q. What do you mean by suspense account? How are errors in accounting classified? Suspense account: A suspense account is an account, which is opened when the trail balance does

Peer review, Peer Review - Process by which an accounting firm's practice i...

Peer Review - Process by which an accounting firm's practice is evaluated for compliance with professional standards. Objective is achieved through the performance of an independen

Ifrs and benefits in organization, Develop a paper that explains the emergi...

Develop a paper that explains the emerging role of international financial reporting standards and how it affects your particular organization. Your paper should assess the adequac

How much are joe''s shares worth after the stock split?, Joe Shareholder ow...

Joe Shareholder owns 100 shares of Peach Company stock which is currently selling for $100 per share. Peach declares a 2-1 stock split. How much are Joe's shares worth after the st

Absorbed cost, These are the indirect costs that are related with manufactu...

These are the indirect costs that are related with manufacturing. Absorbed costs involve expenses like insurance, or property taxes for the building in which the production process

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd