Question

McCann Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $900 2 1,090 3 1,250 4 1,140 a. If the discount rate is 11 percent, what is the present value of these cash flows? b. What is the present value at 17 percent? c. What is the present value at 28 percent?

Answer 1

We discount the cash flows by the interest rate

a) If the discount rate is 11 percent

Present value = 900/(1.11) + 1090/(1.11^2) + 1250/(1.11^3) + 1140/(1.11^4)

Present value = $3360.42

b) If the discount rate is 17 percent

Present value = 900/(1.17) + 1090/(1.17^2) + 1250/(1.17^3) + 1140/(1.17^4)

Present value = $2954.31

c) If the discount rate is 28 percent

Present value = 900/(1.28) + 1090/(1.28^2) + 1250/(1.28^3) + 1140/(1.28^4)

Present value = $2389.14