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 Y 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 val cash flows?
A)$9,851
B)$13,250
C)$11,714
D)$15,129
E)$17,353

Question

Quizplus · Accepted Answer

Using the formula for the present value of an annuity, we can calculate the present value of each set of cash flows and add them together: 
Present value of Years 1-5 = $2,000 x (1 - 1/1.14^5) / 0.14 = $6,779.58
Present value of Years 6-8 = $3,000 x (1 - 1/1.14^3) / 0.14 = $7,083.40
Present value of Year 9 = $4,000 / 1.14^9 = $2,850.01
Total present value = $6,779.58 + $7,083.40 + $2,850.01 = $11,712.99, which is closest to choice C, $11,714.

Assume That You Will Receive $2,000 a Year in Years