Question

Wainright Co. has identified an investment project with the

following cash flows.
Year Cash Flow
1 $698
2 $913
3 $1,274
4 $1,394
If the discount rate is 19.6 percent, what is the present value
of thes

Answer 1

The present value of future cash flows is calculated using the formula
`PV = CF / (1+r)^n` for each year, then summing them up. This calculation determines what the future amounts are worth in today's dollars given a discount rate of 19.6 percent.

Step-by-step explanation:

The student is asking to calculate the present value of future cash flows from an investment at a given discount rate of 19.6 percent. To calculate the present value (PV), we use the formula
`PV = CF / (1+r)^n,` where CF is the future cash flow, r is the discount rate, and n is the number of years until the cash flow is received.

Let's calculate the present value for each year's cash flow:

• 
  `Year 1: PV = $698 / (1+0.196)^1`
• 
  `Year 2: PV = $913 / (1+0.196)^2`
• 
  `Year 3: PV = $1,274 / (1+0.196)^3`
• 
  `Year 4: PV = $1,394 / (1+0.196)^4`

After calculating the present value of each future cash flow separately, you then add up all the present values to get the total present value of the investment.