You just signed a consulting contract that will pay you $38,000,$52,000,and $85,000 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 $139,975. 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 $38,000 / (1 + 0.105)^1 = $34,409. The present value of the second cash flow is $52,000 / (1 + 0.105)^2 = $41,762. The present value of the third cash flow is $85,000 / (1 + 0.105)^3 = $63,804. The sum of these three present values is $139,975.

You Just Signed a Consulting Contract That Will Pay You