Question

• 1. What is the present value of a cash flow if 16,000 yuan will be received in 2 years and the discount rate (interest rate) is 10%?
• 2. What is the present value if the discount rate is 4%?

Answer 1

Present value formula:

Where,
PV = Present value
FV = Future cash flow
i = rate of interest in decimal form (i.e 10% = 0.10)
n = number of years

1. Present value of 16,000 in 2 years when discount rate is 10%.

Therefore, when the discount rate is 10% the present value is $13,223.14

.

2.The present value of 16,000 in 2 years when the discount rate is 4%.

Here, i = 4% = 0.04

Therefore,

Therefore, the present value will be $14,792.90 when the discount rate is 4%.