Mustard's Inc. sold the rights to use one of its patented processes that will result in cash receipts of $2,500 at the end of each of the next four years and a lump sum receipt of $4,000 at the end of the fifth year. The total present value of these payments if interest is at 9% is:
a. $10,699.
b. $14,000.
c. $11,468.
d. $12,100.

Option A is correct ($10,699)

Total Present Value=$10,699.03≅$10,699

Explanation:

Option A is correct ($10,699)

Amount Paid at end of each year=PMT=$2,500

Interest Rate=r=9%=0.09

Lump Sum amount=FV=$4,000

Formula for Present Value of Annuity (PVA)

Where:

n is the number of years=4 years

In case of Lump Sum:

Where:

n is the number of years=5 years

So,

Total Present Value=PVA+PV

Total Present Value=$8099.2997+$2599.7255

Total Present Value=$10,699.03≅$10,699

a.   is the correct choice.

good luck. : )