If the interest rate is 5% and cash flows are $3,000 at the end of year one and $5,000 at the end of year two, then the present value of these cash flows is
A)$7,392.29.
B)$8,400.34.
C)$4,222.50
D)$400.74.

Question

Quizplus · Accepted Answer

The present value (PV) of future cash flows is calculated using the formula PV = CF1 / (1 + r)^1 + CF2 / (1 + r)^2, where CF1 and CF2 are the cash flows at the end of year one and two, respectively, and r is the interest rate. Substituting the given values: PV = $3,000 / (1 + 0.05)^1 + $5,000 / (1 + 0.05)^2 = $2,857.14 + $4,535.15 = $7,392.29.

If the Interest Rate Is 5% and Cash Flows Are