Question

The appropriate discount rate for the following cash flows is 7.28 percent per year. Year Cash Flow

1) $ 2,460
2) 0
3) 3,900
4) 2,150
What is the present value of the cash flows?

Answer 1

The present value of the given cash flows is $7,450.35.

Step-by-step explanation:

The present value of the given cash flows can be calculated by discounting each cash flow back to the present using the appropriate discount rate.

The formula for calculating the present value is:

PV = CF / (1 + r)n

where PV is the present value, CF is the cash flow, r is the discount rate, and n is the number of years.

For the given cash flows and a discount rate of 7.28%, the present values are:

1. Year 1: $2,460 / (1 + 0.0728)1 = $2,287.63
2. Year 2: $0 / (1 + 0.0728)2 = $0
3. Year 3: $3,900 / (1 + 0.0728)3 = $3,414.29
4. Year 4: $2,150 / (1 + 0.0728)4 = $1,748.43

The total present value of the cash flows is $2,287.63 + $0 + $3,414.29 + $1,748.43 = $7,450.35.