Oriole Company will receive $43000 today (January 1, 2020), and also on each January 1st for the next five years (2021 – 2025). What is the present value of the six $43000 receipts, assuming a 11% interest rate?

PV of the six year annuity =  $201,923.57  

Explanation:

This is an example of an advanced annuity. A series of constant amount receivable for certain number of years with first one occurring immediately.

Present Value of the annuity for the next five years=

A×  1- (1+r)^(-n)/r

A- annual cash flow, n- number of period, r-interest rate per period

A- 43,000, r- 11%, n- 5

=43,000× (1- 1.11^(-5))/0.11

=158,923.57

The first cash flow of 43,000 occurs immediately , hence it is already discounted. Hence the PV of the total cash flows would be the sum of the PV of the next five year cash flows and the one received now.

Hence,

PV = 158,923.57  + 43,000= 201,923.57  

PV of the six year annuity =  $201,923.57  

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