Calculate the future value for each case using the data above. (using
If you apply a 8% discount rate for 18 years, the present value of Great Lakes Inc.’s liability is $148.741,039.43 Calculating this amount involves taking the future value (300 million), and multiplying it by 1 + the discount rate (1 + 8). The result is 0.9259. This, when added to the future value, equals $148741,039.43
Calculations using Present Value are used for determining how much money needs to be invested to get the desired returns after a given time. This calculation considers variables like inflation and potential risk that may reduce future investment returns. Investors are provided with an exact estimate of the returns they could expect from current investments.
Having an understanding of how Present Value calculations work is essential for any financial analyst so that they can make informed decisions about where best to allocate funds within their organization’s budget while still ensuring they will reach their goals over time. Great Lakes Inc will need to make an investment of approximately $148 Million dollars to ensure sufficient reserve funds in order to pay off the pension liability 18 years from now.