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sp2606 [1]
3 years ago
10

The appropriate discount rate for the following cash flows is 8 percent compounded quarterly. YearCash Flow 1 $800 2 800 3 0 4 1

,200 What is the present value of the cash flows
Business
1 answer:
zalisa [80]3 years ago
3 0

Answer:

Total PV= $2,298.24

Explanation:

<u>First, we need to determine the effective annual rate:</u>

EAR= [1 + (i/n)]^n - 1

EAR= [1 + (0.08/4)]^4 - 1

EAR= 0.082

<u>Now, we can determine the present value of the cash flow, using the following formula:</u>

PV= ∑[Cf/(1+i)^n]

Cf1= 800 / 1.082= 739.37

Cf2= 800 / 1.082^2= 683.34

Cf3= 0

Cf4= 1,200 / 1.082^4= 875.53

Total PV= $2,298.24

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Answer:

Journal Entries

Account                                                    Dr.        Cr.

1.

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2.

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