You are considering a project with the following cash flows: $$\begin{array} { | l | l | l | }
\hline \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \
\hline £ 4,200 & £ 5,000 & £ 5,400 \
\hline
\end{array}$$ What is the present value of these cash flows,given a 3% discount rate?

Question

You are considering a project with the following cash flows: $$\begin{array} { | l | l | l | } 
\hline \text { Year 1 } & \text { Year 2 } & \text { Year 3 } \
\hline £ 4,200 & £ 5,000 & £ 5,400 \
\hline
\end{array}$$ What is the present value of these cash flows,given a 3% discount rate?

Quizplus · Accepted Answer

The present value can be calculated as:

PV = Year 1 / (1 + r)^1 + Year 2 / (1 + r)^2 + Year 3 / (1 + r)^3

where r is the discount rate.

Plugging in the given values, we get:

PV = 4200 / (1 + 0.03)^1 + 5000 / (1 + 0.03)^2 + 5400 / (1 + 0.03)^3

PV = £13,732.41, which is closest to choice A (£13,732.41). Therefore, the best choice is A.

You Are Considering a Project with the Following Cash Flows