You are scheduled to pay a $350 cash flow in one year, and receive a $1,000 cash flow in years 3 and 4. If interest rates are 10 percent per year, what is the combined present value of these cash flows?
A) $991.38
B) $1,097.14
C) $1,116.14
D) $1,213.92

Question

Quizplus · Accepted Answer

To find the present value of the cash flows, discount each cash flow to the present using the formula PV = FV / (1 + r)^n. For the $350 payment in one year: PV = 350 / (1.10)^1 = $318.18. For the $1,000 cash flow in year 3: PV = 1000 / (1.10)^3 = $751.31. For the $1,000 cash flow in year 4: PV = 1000 / (1.10)^4 = $683.01. The combined present value is $318.18 + $751.31 + $683.01 = $1,116.50, which is closest to option C.

You Are Scheduled to Pay a $350 Cash Flow in One