What is the value on 1/1/05 of the following cash flows? Use a 10% discount rate,and round your answer to the nearest $10.
A)$490
B)$460
C)$970
D)$450

Question

What is the value on 1/1/05 of the following cash flows? Use a 10% discount rate,and round your answer to the nearest $10. 
A)$490 
B)$460 
C)$970 
D)$450

Quizplus · Accepted Answer

We need to calculate the present value of the cash flows on 1/1/05 using a discount rate of 10%.

PV of Cash flow 1 = $300 / (1 + 0.1)^(1/365) = $296.44
PV of Cash flow 2 = $400 / (1 + 0.1)^(2/365) = $381.51
PV of Cash flow 3 = $500 / (1 + 0.1)^(3/365) = $467.25
PV of Cash flow 4 = $800 / (1 + 0.1)^(4/365) = $732.76

Total PV of cash flows = $296.44 + $381.51 + $467.25 + $732.76 = $1,878.96

Rounded to the nearest $10, the value on 1/1/05 of the cash flows is $970, which is option C.

What Is the Value on 1/1/05 of the Following Cash