Question

The appropriate discount rate for the following cash flows is 9 percent compounded quarterly.

Year | Cash Flow |

1 | $600 |

2 | 600 |

3 | 0 |

4 | 1,300 |

What is the present value of the cash flows?

Answer #1

Step 1 - Find the effective annual rate ; |

EAR = [1+i/m]^m - 1 |

i - nominal rate = 9% |

m - no. of compounding periods per year =4 |

EAR = (1+0.09/4)^4 - 1 = 1.0225^4 - 1 |

= 1.093083 - 1 = 0.093083 = 9.3083% |

Step 2 - find the sum of present value of individual cash flows: |

PV = FV/(1+r)^n |

PV - Present value |

FV - Future value |

r - Interest rate |

n - no. of periods |

Present value of cash flows = 600/(1+0.093083)^1 + 600/(1+0.093083)^2 + 0/(1+0.093083)^3 + 1300/(1+0.093083)^4 |

= 548.9062 + 502.1633 + 0 + 910.6066 = 1961.6761 |

Present value of the given
cash flows is $1961.68 |

The appropriate
discount rate for the following cash flows is 13 percent compounded
quarterly.
Year
Cash Flow
1
$600
2
900
3
0
4
1,200
What is the
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The appropriate
discount rate for the following cash flows is 12 percent compounded
quarterly.
Year
Cash
Flow
1
$800
2
700
3
0
4
1,400
Required:
What is the
present value of the cash flows?
Multiple Choice
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1. The appropriate discount rate
for the following cash flows is 6 percent compounded
quarterly.
Year
Cash
Flow
1
$900
2
600
3
0
4
1,100
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Cash Flow
1
$2,800
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0
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8,100
4
1,940

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Year 3
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Year 4
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Year 5
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Cash Flow
1
$375
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$822
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$555
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Year
Project 1
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Project 2
Cash flow
0
-$20,000
-$20,000
1
1,000
12,000
2
3,000
15,000
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4,000
3,000
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12,000
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15,000
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Cash Flow
0
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65,000
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Cash Flow
0
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YEAR
1
2
3
4
5
CASH FLOW
$600
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$500
$400
$900
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YEAR
1
2
3
4
CASH FLOW
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