Question

# What is the present value of the following cash flow stream at rate of 10.0% ?...

What is the present value of the following cash flow stream at rate of 10.0% ?
Years: 0 1 2 3
CFs: \$750. \$2,4050. \$3,175. \$4,400

Present Value is the discounted future cash flows. Here, the rate of discount is 10% (r).

Now, to calculate the Present Value of a Cash Flow in any year, the formula to be used is, PV = Cash Flow / (1 + r)^Year.

So, for the year 0, Present Value will be 750 / (1+ 10%)^0 = \$750

Similarly, for year 1, PV will be 24050 / (1 + 10%)^1 = \$21,863.64

Year 2, 3175 / (1 + 10%)^2 = \$2,623.97

Year 3, 4400 / (1 + 10%)^3 = \$3,305.79

The Present Value of the cash flows shall be calculated as below:

 Particulars Year Cash Flow PVF @ 10% Present Value Cash Flows 0 750 1 \$750.00 Cash Flows 1 24050 0.9091 \$21,863.64 Cash Flows 2 3175 0.8264 \$2,623.97 Cash Flows 3 4400 0.7513 \$3,305.79 Sum of Present Value \$28,543.39

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