If you waited four years and spent $500,000, what would be the equivalent cost in today's dollars, given a 10% discount rate?

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Multiple Choice

If you waited four years and spent $500,000, what would be the equivalent cost in today's dollars, given a 10% discount rate?

Money today is worth more than the same amount in the future, because you could earn return on it. To convert a future cost to its today value, use present value: divide the future amount by (1 + r)^t. Here, r = 0.10 and t = 4, so present value = 500,000 / (1.10)^4. Since (1.10)^4 = 1.4641, you get 500,000 / 1.4641 ≈ 341,530. So the equivalent cost in today’s dollars is about $341,530. This illustrates how discounting lowers future costs; longer waits or higher rates reduce the present value.

Money today is worth more than the same amount in the future, because you could earn return on it. To convert a future cost to its today value, use present value: divide the future amount by (1 + r)^t. Here, r = 0.10 and t = 4, so present value = 500,000 / (1.10)^4. Since (1.10)^4 = 1.4641, you get 500,000 / 1.4641 ≈ 341,530. So the equivalent cost in today’s dollars is about $341,530. This illustrates how discounting lowers future costs; longer waits or higher rates reduce the present value.

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