Find the present value of the following stream of a firm's cash flows,assuming that the firm's opportunity cost is 14 percent.
A) $131,068
B) $ 19,830
C) $ 14,850
D) $120,820

Question

Find the present value of the following stream of a firm's cash flows,assuming that the firm's opportunity cost is 14 percent. 
A) $131,068 
B) $ 19,830 
C) $ 14,850 
D) $120,820

Quizplus · Accepted Answer

To calculate the present value of cash flows, we can use the formula:

PV = CF1/(1+r)^1 + CF2/(1+r)^2 + ... + CFn/(1+r)^n

where PV is the present value, CF is the cash flow in each period, r is the opportunity cost, and n is the number of periods.

Using this formula, and the cash flow data given in the table, we get:

PV = 30000/(1+0.14)^1 + 35000/(1+0.14)^2 + 40000/(1+0.14)^3 + 45000/(1+0.14)^4 + 50000/(1+0.14)^5

PV = $131,068

Therefore, the best choice is A) $131,068.

Find the Present Value of the Following Stream of a Firm's