Question

What is the present value of the following cash flows that Charlie will receive in following...

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

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Answer #1

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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