The table below shows the payments at the end of each year from three different physical assets.
TABLE 15-1
-Refer to Table 15-1.A,B,and C represent possible purchases of physical capital,each offering a stream of payments as indicated in the table.There are no payments beyond Year 3.The interest rates in each year are also specified in the table.What is the present value (at the beginning of Year 1)of asset A?

Question

The table below shows the payments at the end of each year from three different physical assets.
  TABLE 15-1
-Refer to Table 15-1.A,B,and C represent possible purchases of physical capital,each offering a stream of payments as indicated in the table.There are no payments beyond Year 3.The interest rates in each year are also specified in the table.What is the present value (at the beginning of Year 1)of asset A?

Quizplus · Accepted Answer

The present value of asset A is $2723.24. This can be calculated using the formula:PV = (CF1 / (1 + r)^1) + (CF2 / (1 + r)^2) + (CF3 / (1 + r)^3)where:PV is the present valueCF1 is the cash flow in year 1CF2 is the cash flow in year 2CF3 is the cash flow in year 3r is the interest rateIn this case, the cash flows are $1000, $1200, and $1500, and the interest rates are 5%, 6%, and 7%. Plugging these values into the formula, we get:PV = (1000 / (1 + 0.05)^1) + (1200 / (1 + 0.06)^2) + (1500 / (1 + 0.07)^3)= $2723.24

The Table Below Shows the Payments at the End of Each