How To Calculate Present Value Of Cash Flow Payments?

1. Marc Says

   You have just negotiated the sale of the family business, and have negotiated payment terms of $50,000 to be paid on final signing of the sales agreement, a payment of $40,000 at the end of this and the next year and then annual payments in the amount of $25,000 each year from years 3 through 7. A final payment of $100,000 is due at the end of the 8th year. What is the present value of these payment cash flows? Assume a discount rate of 3%.
   b. $313,400
   Calculated by finding the present value of each of the payments, and then adding them up.
   The calculations are shown below.
   Column 1 is the number of the period (note that period 0 = the initial payment upon signing)
   Column 2 is the total amount of the payment
   Column 3 is the Present Value of each years payment discounted back to the sale date
   Per – Pmt – - – - – P.V.
   0 $50,000.00 $50,000.00
   1 $40,000.00 $38,834.95
   2 $40,000.00 $37,703.84
   3 $25,000.00 $22,878.54
   4 $25,000.00 $22,212.18
   5 $25,000.00 $21,565.22
   6 $25,000.00 $20,937.11
   7 $25,000.00 $20,327.29
   8 $100,000.00 $78,940.92
   Total $355,000.00 $313,400.04

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