What is the present value of the following cash flows that Charlie will receive in following years: Year 1: $1000, Year 3: $3000, and Year 5: $5,000. Assume interest rate is 6% compounded annually. $4,682.21 $6,265.85 $7,198.54 $9,633.28
Total Present Value of annual cash inflows
Year |
Annual Cash Flow ($) |
Present Value factor at 6% |
Present Value of Cash Flow ($) |
1 |
1,000 |
0.94340 |
943.40 |
2 |
0 |
0.89000 |
0 |
3 |
3,000 |
0.83962 |
2,518.85 |
4 |
0 |
0.79209 |
0 |
5 |
5,000 |
0.74726 |
3,736.29 |
TOTAL |
7,198.54 |
||
“Therefore, the Total Present Value of annual cash inflows will be $7,198.54”
NOTE
The Formula for calculating the Present Value Factor is [1/(1 + r)^{n}], Where “r” is the Discount/Interest Rate and “n” is the number of years.
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