Question

The appropriate discount rate for the following cash flows is 12 percent compounded quarterly.

Year	Cash Flow
1	$800
2	700
3	0
4	1,400

Required:

What is the present value of the cash flows?

Multiple Choice

• $2,178.57

• $2,093.13

• $2,135.85

• $2,162.05

• $383.67

Answer 1

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= $0.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the discount rate of 12%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 12% discount rate is $2,162.05.

Hence, the answer is option d.