What is the present value of the following cash flows, given an appropriate discount rate of 3.98% (to the nearest penny)?
| Year 1 | $3,593 |
| Year 2 | $2,157 |
| Year 3 | $7,824 |
| Year 4 | $36,542 |
| Year 5 | 6,369 |
Present value is the concept that states an amount of money today is worth more than that same amount in the future. In other words, money received in the future is not worth as much as an equal amount received today.
PV Formula and Calculation:
Present Value= FV /(1+r)^n
where:
FV=Future Value
r=Rate of return
n=Number of periods
Calculation:
| PV = FV/(1+r)^n; n = 1 to 5, r = 3.98% | ||
| Year | Cash Flow (FV) | Present Value of Cash flow |
| 1 | $3,593 | $3,455 |
| 2 | $2,157 | $1,995 |
| 3 | $7,824 | $6,960 |
| 4 | $36,542 | $31,260 |
| 5 | $6,369 | $5,240 |
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