Determining the present value of a lump-sum future cash receipt One year from today Wendy Jones is scheduled to receive a $100,000 payment from a trust fund her father established. She wants to buy a car today but does not have the money. A friend has agreed to give Wendy the present value of the $100,000 today if she agrees to give him the full $100,000 when she collects it one year from now. They agree that 8 percent reflects a fair discount rate.

Required

a. You have been asked to determine the present value of the future cash flow. Use a present value table to determine the amount of cash that Wendy’s friend should give her.

b. Use an algebraic formula to verify the result you determined in Requirement a.