Question

The appropriate discount rate for the following cash flows is 9 percent compounded quarterly.

Year Cash Flow 1 $ 815 2 990 3 0 4 1,520

What is the present value of the cash flows?

Answer 1

Present value of the cash flow are 2,658 dollars.

Step-by-step explanation:

We can get the present value by simply multiplying the yearly dicount rate with yearly cash flows.

The discount factor of year 1 = (1+9%)^-1 = 0.197 -A

So PV of years 1 cash flow = A*815 = 748

The discount factor of year 1 = (1+9%)^-2 = 0.842 -B

So PV of years 1 cash flow = A*990 = 833

The discount factor of year 1 = (1+9%)^-3 = 0.772 -C

So PV of years 1 cash flow = A*0 = 0

The discount factor of year 1 = (1+9%)^-4 = 0.708 -D

So PV of years 1 cash flow = A*1,529 = 1,077

By adding all above calculated cashflows PV we get 2658.