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

Homework Answers

Answer #1

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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