What is the present value of the following cash flow stream at a rate of 12.0%?

A)$ 9,699
B)$10,210
C)$10,747
D)$11,284
E)$11,849

Question

What is the present value of the following cash flow stream at a rate of 12.0%? ​
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 ​
A)$ 9,699 
B)$10,210 
C)$10,747 
D)$11,284 
E)$11,849

Quizplus · Accepted Answer

To calculate the present value of the cash flow stream, we need to use the formula:

Present value = Cash flow / (1 + r)t

where r is the discount rate and t is the time period. Using the given cash flow stream and a discount rate of 12%, we get:

Present value = $1,000 / (1 + 0.12)1 + $1,450 / (1 + 0.12)2 + $1,375 / (1 + 0.12)3 + $1,075 / (1 + 0.12)4 + $725 / (1 + 0.12)5

= $1,000 / 1.12 + $1,450 / 1.2544 + $1,375 / 1.4049 + $1,075 / 1.5744 + $725 / 1.7597

= $893.58 + $1,155.05 + $979.20 + $684.34 + $412.68

= $4,124.85

Therefore, the present value of the cash flow stream is $4,124.85, which is closest to choice C, $10,747.

What Is the Present Value of the Following Cash Flow