You are considering a project with the following cash flows: $$\frac { \text { Year } 1 } { \$ 4,200 } \frac { \text { Year } 2 } { \$ 5,000 } \frac { \text { Year } 3 } { \$ 5,400 }$$ What is the present value of these cash flows, given a 3% discount rate?

Question

Quizplus · Accepted Answer

To calculate the present value of the cash flows, we need to use the formula:

$PV = \frac{CF_1}{(1+r)^1} + \frac{CF_2}{(1+r)^2} + \frac{CF_3}{(1+r)^3}$

where $CF$ is the cash flow and $r$ is the discount rate. Substituting the given values, we get:

$PV = \frac{4200}{(1+0.03)^1} + \frac{5000}{(1+0.03)^2} + \frac{5400}{(1+0.03)^3}$

$PV = \frac{4200}{1.03} + \frac{5000}{1.0609} + \frac{5400}{1.0927}$

$PV = 4082.5243 + 4716.0111 + 4933.8748$

$PV = 13732.41$

Therefore, the present value of the cash flows is $13,732.41$.

You Are Considering a Project with the Following Cash Flows Year 1$4,200 Year 2$5,000 Year 3$5,400\frac { \text { Year } 1 } { \$ 4,200 } \frac { \text { Year } 2 } { \$ 5,000 } \frac { \text { Year } 3 } { \$ 5,400 }$4,200 Year 1​$5,000 Year 2​$5,400 Year 3​

You Are Considering a Project with the Following Cash Flows $\frac { \text { Year } 1 } { \$ 4,200 } \frac { \text { Year } 2 } { \$ 5,000 } \frac { \text { Year } 3 } { \$ 5,400 }$