Final answer:
The present value of cash flows can be calculated using the formula PV = Cash Flow / (1 + Discount Rate)^n. The present value of the cash flows provided at different discount rates are $747.66, $952.87, $1,118.45, and $1,132.54 at a 7% discount rate; $683.76, $803.96, $895.15, and $893.53 at a 17% discount rate; and $640, $703.29, $715.97, and $691.75 at a 25% discount rate.
Step-by-step explanation:
The present value (PV) of cash flows can be calculated using the formula:
PV = Cash Flow / (1 + Discount Rate)^n
where PV is the present value, Cash Flow is the cash flow in each year, Discount Rate is the discount rate, and n is the number of years.
For the cash flows provided, the present value at different discount rates is as follows:
- At a 7% discount rate:
Yr 1: 800 / (1 + 0.07)^1 = $747.66
Yr 2: 1090 / (1 + 0.07)^2 = $952.87
Yr 3: 1350 / (1 + 0.07)^3 = $1,118.45
Yr 4: 1475 / (1 + 0.07)^4 = $1,132.54 - At a 17% discount rate:
Yr 1: 800 / (1 + 0.17)^1 = $683.76
Yr 2: 1090 / (1 + 0.17)^2 = $803.96
Yr 3: 1350 / (1 + 0.17)^3 = $895.15
Yr 4: 1475 / (1 + 0.17)^4 = $893.53 - At a 25% discount rate:
Yr 1: 800 / (1 + 0.25)^1 = $640
Yr 2: 1090 / (1 + 0.25)^2 = $703.29
Yr 3: 1350 / (1 + 0.25)^3 = $715.97
Yr 4: 1475 / (1 + 0.25)^4 = $691.75