Question

The appropriate discount rate for the following cash flows is 9 percent compounded quarterly. Year Cash Flow 1 $700 2 700 3 0 4 1,100 What is the present value of the cash flows

Answer 1

Total present value= $2,010.65

Step-by-step explanation:

Giving the following information:

Cf1= 700

Cf2= 700

Cf3= 0

Cf4= 1,100

Discount rate= 9%

To calculate the present value, we need to use the following formula on each cash flow:

PV= FV/(1+i)^n

Cf1= 700/1.09= 642.20

Cf2= 700/1.09^2= 589.18

Cf3= 0

Cf4= 1,100/1.09^4= 779.27

Total present value= $2,010.65