Assume that your required rate of return is 12% and you are given the following stream of cash flows:

If payments are made at the end of each period,what is the present value of the cash flow stream? (Round to the nearest whole dollar)
A) $66,909
B) $57,323
C) $61,815
D) $52,345
E) $62,029

Question

Assume that your required rate of return is 12% and you are given the following stream of cash flows:

If payments are made at the end of each period,what is the present value of the cash flow stream? (Round to the nearest whole dollar)
A) $66,909 
B) $57,323 
C) $61,815 
D) $52,345 
E) $62,029

Quizplus · Accepted Answer

Step 1 - The four cash flows of $15,000 can be classified as an annuity, so first, take the present value of that annuity.
PV = PMT × 11ea7fdb_fc1e_225d_a768_35e4edffa400_TB2902_11 PV = 15,000 × 11ea7fdb_fc1e_225e_a768_0f2324147bca_TB2902_11 = $45.560.24
Using a financial calculator:
N = 4, I = 12, PMT = -15,000, FV = 0, cpt PV = $45,560.24
Step 2 - Discount the $20,000 cash flow back to today.
PV = 11ea7fdb_fc1e_225f_a768_cf1772d44afd_TB2902_11 PV = 11ea7fdb_fc1e_2260_a768_f35687d8da96_TB2902_11 = $11,348.54
Step 3 - Add the totals together to get the present value.
10,000 + 45,560.24 + 11,348.54 = $66,908.78

Assume That Your Required Rate of Return Is 12% and You