You just signed a consulting contract that will pay you $35,000, $52,000, and $80,000 annually at the end of the next three years, respectively. What is the present value of these cash flows given a 10.5 percent discount rate?

Question

Quizplus · Accepted Answer

The present value of the cash flows is $133,554. This is calculated by taking the sum of the present values of each of the three cash flows. The present value of the first cash flow is $35,000 / (1 + 0.105)^1 = $31,666.67. The present value of the second cash flow is $52,000 / (1 + 0.105)^2 = $42,575.76. The present value of the third cash flow is $80,000 / (1 + 0.105)^3 = $59,311.57. The sum of these three present values is $133,554.

You Just Signed a Consulting Contract That Will Pay You