Question

The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $250,000$37,500$180,000$300,000$750,000$725,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 6.5%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar

Answer 1

Answer: $1,694,292

Step-by-step explanation:

The present value is simply the sum of the discounted value of the various cash flows.

`= (250000)/(1 + 0.065) + (37500)/(1.065^(2) ) + (180000)/(1.065^(3)) + (300000)/(1.065^(4)) + (750000)/(1.065^(5)) + (725000)/(1.065^(6))`

= $1,694,291.63

= $1,694,292