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Net present value

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?

Solution Preview

The payments are an annuity. The Present Value (PV) of an annuity is calculated as
PV = PMT [(1 ...

Solution Summary

The solution explains how to calculate the net present value of the payment.

$2.19