Jenni's Diner has expected net annual cash flows of $16,200,$18,600,$19,100,and $19,500 for the next four years,respectively.At the end of the fourth year,the diner is expected to be worth $57,900 cash.What is the present value of the diner at a discount rate of 11.6 percent?

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the diner is $93,090.25. This is calculated by taking the sum of the present values of the expected net annual cash flows and the present value of the diner at the end of the fourth year. The present value of the expected net annual cash flows is calculated by multiplying each cash flow by the present value factor for the corresponding year. The present value of the diner at the end of the fourth year is calculated by multiplying the cash flow by the present value factor for four years.

Jenni's Diner Has Expected Net Annual Cash Flows of $16,200,$18,600,$19,100,and