Answer:
Value today of the a money machine = $9552.08
Explanation:
The value of the money machine is the present value of the equal amount of payment receivable for 5 years. This series of equal payments is called an annuity.
An annuity is a series of equal payments or receipts occurring for a certain number of years.
This will be done as follows:
Step 1 :The present value (PV) of the first payment is $2,253 as it is due immediately.
Step 2 :The PV of last 4 year annuity:
PV = 2,253 × ( 1 - (1.09)^(-4))/0.09 )
= 2,253 × 3.2397
= $ 7299.08
Value today of the a money machine = $ 7299.08 + $2,253
= 9552.08
