An aircraft company has signed a contract to sell a plane for $20 million. The firm buying the
plane will pay for it in 5 annual payments (at year end) of $4 million. If the firm's cost of capital is 6%, what is the net present value of this payment?
The payments are an annuity. The Present Value (PV) of an annuity is calculated as
PV = PMT [(1 ...
The solution explains how to calculate the net present value of the payment.