Question

Assume that you will receive $2,000 a year in Years 1 through 5, $3,000 a year in Years 6 through 8, and $4,000 in Year 9, with all cash flows to be received at the end of the year. If you require a 14 percent rate of return, what is the present value of these cash flows? Select one: a. $ 9,851 b. $13,250 c. $11,714 d. $15,129 e. $17,353

Answer 1

Answer:

c. $11,714

Explanation:

You will calulate the present value of each cash flow:

$\frac{Cash \: Flow}{(1 + rate)^{time} } = PV$

Cash Flow year 9 4,000

time 9

rate 0.14

$\frac{4000}{(1 + 0.14)^{9} } = PV$

PV   1,230.03

This will be done for every year:

$\left[\begin{array}{ccc}Year&Cash \: Flow&PV\\1&2,000&1,754.39\\2&2,000&1,538.94\\3&2,000&1,349.94\\4&2,000&1,184.16\\5&2,000&1,038.74\\6&3,000&1,366.76\\7&3,000&1,198.91\\8&3,000&1,051.68\\9&4,000&1,230.03\\Total&23,000&11,713.55\\\end{array}\right]$