Question

You have been offered the opportunity to invest in a project that will pay $2,138 per year at the end of years one through three and $11,545 per year at the end of years four and five. If the appropriate discount rate is 9.7 percent per year, what is the present value of this cash flow pattern?

Answer 1

Present value is $21094.13

Explanation:

The present value is calculated in the table below:

Year Investment ($) PV Factor Present Value ($)

1             2138                     0.917431 1961.47

2            2138                   0.841680 1799.51

3              2138                      0.772183 1650.93

4              11545                      0.708425 8178.77

5             11545                        0.649931 7503.45

Total   21094.13

Present value is $21094.13

Where:  PV = present vale

The present value factor is calculated by taking or considering the 9 percent of discount rate.

NOTE: the present value in dollars is calculated by multiplying the investment with the present value factor