Question

- for the below Cash flow, find the total Present value using 10% interest rate.

years	$ cost
0	13,321
1	-
2	-
3	1,230
4	1,230
5	1,230
6	3,866

Answer 1

Rate of Interest = 10% = 0.1

Present value is calclated as: [Cash Flow / (1 + Rate of Interest)^^Year]

Present value of cash flow of year 0 =[13,321 / (1 + 0.1)^⁰] = 13,321

Present value of cash flow of year 3 =[1,230 / (1 + 0.1)^³] = 924.12

Present value of cash flow of year 4 =[1,230 / (1 + 0.1)^⁴] = 840.11

Present value of cash flow of year 5 =[1,230 / (1 + 0.1)^⁵] = 763.73

Present value of cash flow of year 6 =[3,866 / (1 + 0.1)^⁶] = 2,182.26

Year	Cash Flow	Present Value
0	13321	13321
1	-	-
2	-	-
3	1230	924.12
4	1230	840.11
5	1230	763.73
6	3866	2182.26
		18031.21

Sum of Total Present wale is 18,031.21