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# Present Value

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Hopeful House, a nonprofit orgnanization serving the Big City community, is considering building a playground. It needs to rationally convince the Community Chest that its project is worthy of a special grant by calculating the present value of future benefits. The financial manager estimates future benefits of the playground at \$10,000 that will be realized at the end of a four year period. Further, he recommends using a discount rate of 9%. His executive director thinks that his discount rate is too high and she recommends using 8%. The Community Chest associate, however, insists both rates are too low and wants them to use 10%. Calculate the present value of the estimated benefit stream at all three discount rates. Explain the effect of higher and lower discount rates.

#### Solution Preview

Hopeful House, a nonprofit organization serving the Big City community, is considering building a playground. It needs to rationally convince the Community Chest that its project is worthy of a special grant by calculating the present value of future benefits. The financial manager estimates future benefits of the playground at ...

#### Solution Summary

Calculates the present value of the estimated benefit stream at three discount rates (8%, 9%, 10%).

\$2.19