What is the present value of the following cash flow stream,discounted at 7% p.a.: Year 1,$100;Year 2,$400;Years 3 through 20,$300?
A)$2859.20
B)$3563.40
C)$3078.63
D)$2782.40

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an uneven cash flow stream:

PV = CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CF20/(1+r)^20

where PV is the present value, CF is the cash flow for each year, and r is the discount rate.

Plugging in the values:

PV = 100/(1+0.07)^1 + 400/(1+0.07)^2 + 300[(1-1/(1+0.07)^18)/0.07(1+0.07)^2]

PV = $3,078.63

Therefore, the best choice is C.

What Is the Present Value of the Following Cash Flow