You are scheduled to pay a $350 cash flow in one year, and receive a $1,000 cash flow in years 3 and 4. If interest rates are 10% per year, what is the combined present value of these cash flows?
A) $991.38
B) $1097.14
C) $1,116.14
D) $1,213.92

Question

Quizplus · Accepted Answer

We need to calculate the present value of each cash flow and add them up.

PV of $350 due in one year = $350 / (1 + 0.1)^1 = $318.18
PV of $1,000 due in year 3 = $1,000 / (1 + 0.1)^3 = $751.31
PV of $1,000 due in year 4 = $1,000 / (1 + 0.1)^4 = $683.01

The combined present value is:

$318.18 + $751.31 + $683.01 = $1,116.14

Therefore, the best choice is C ($1,116.14).

You Are Scheduled to Pay a $350 Cash Flow in One