Question

Assume that you have the following possible cash flows:

Years 1 and 2 CFs = $300;

Year 3 CF = $100;

Years 4 and 5 CFs = $200.

What is the value of the cash flows at today if the required discount rate is 5%?

	A.	556.45
	B.	695.45
	C.	569.45
	D.	956.45
	E.	965.45

Answer 1

The question is solved by calculating the net present value.

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

• Press the CF button.
• CF0= $0.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the discount rate of 5%
• Press the down arrow and CPT buttons to get the net present value.  

Net Present value of cash flows at 5% discount rate is $965.45.

Hence, the answer is option e.