Question

You are considering an investment opportunity that yields $560 one year from today, $870 in two years, and $1,350 in three years. What is the present value of these cash inflows if your opportunity cost is 7%? (Round your answer to the nearest hundredth; two decimal places)

Answer 1

The present value of the cash inflows is $2407.62.

Step-by-step explanation:

To calculate the present value of the cash inflows, we need to discount each payment to its present value using the opportunity cost rate of 7%.

First, we calculate the present value of $560 received after one year:

PV = $560 / (1 + 0.07) ^1 = $522.43

Next, we calculate the present value of $870 received after two years:

PV = $870 / (1 + 0.07) ^2 = $760.08

Finally, we calculate the present value of $1350 received after three years:

PV = $1350 / (1 + 0.07) ^3 = $1125.11

The present value of these cash inflows is the sum of their individual present values: PV = $522.43 + $760.08 + $1125.11 = $2407.62.