CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money
Kavita Enterprises is offered a machine on instalments: ₹40,000 at the end of each year for 4 years. The cost of capital is 12% p.a. Given the PV of ₹1 at 12% for years 1 to 4 as 0.893, 0.797, 0.712 and 0.636 respectively, what is the present value of the instalments?
The present value is ₹1,21,520, found by multiplying 40,000 by the cumulative factor of 3.038.
- A₹1,60,000
- B₹1,21,480Correct
- C₹1,36,000
- D₹1,29,760
Explanation
Sum of factors = 0.893+0.797+0.712+0.636 = 3.038. PV = 40,000 x 3.038 = 1,21,520. Check: 35,720+31,880+28,480+25,440 = 1,21,520. So the correct value is ₹1,21,520, which is not listed exactly; the nearest option is not valid.
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