Question

Find the present value of the following cash flow stream if the discount rate is 6.97%: CF1 = 24, CF2 = 42, CF3 = 47, CF4 = 74. The cash flows are received at the end of each year. Round to the nearest $0.01 (e.g., if your answer is $175.386, record it as 175.39).

Answer 1

Rate = 6.97%

CF1 = 24; Discount Factor at Year 1 = 1/(1+6.97%) = 0.9348

PV of CF1 = 24 * 0.9348 = 22.44

CF2 = 42; Discount Factor at Year 2 = 1/(1+6.97%)² = 0.8739

PV of CF2 = 0.8739 * 42 = 36.71

CF3 = 47; Discount Factor at Year 3 = 1/(1+6.97%)³ = 0.8170

PV of CF3 = 47 * 0.8170 = 38.40

CF4 = 74; Discount Factor at Year 4 = 1/(1+6.97%)⁴ = 0.7638

PV of CF4 = 74 * 0.7638 = 56.52

Adding the Present Values, we will get Present Value of the cashflow stream

PV of All cashflows = 22.44 + 36.71 + 38.40 + 56.52 = 154.06