Question

Given a 7 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $1,350, $1,550, $1,550, and $1,850, respectively. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

Answer:

The present value of cash flows is $ 5,292.13  

Explanation:

The present value is today's equivalence of the company's future cash flow discounted using the 7% interest rate as a discount rate.

Formula for pv of a cash flow=cash flow/(1+r)^n

r is the 7% interest rate

n is the relevant year each cash flow relates to

PV=$1,350/(1+7%)^1+$1550/(1+7%)^2+$1550/(1+7%)^3+$1850/(1+7%)^4=

$ 5,292.13