Budvar-brewery company expects to receive the following cash inflows: $35 000 three years from now,$50 000 five years from now and $80 000 eight years from now.If the interest rate over the whole period is 8% per annum,compounded quarterly,the total present value of these cash flows (to the nearest dollar)is:

Question

Quizplus · Accepted Answer

To calculate the present value of the cash flows, we need to use the formula:
PV = CF/(1+r)^n
where PV is the present value, CF is the cash flow, r is the interest rate per period, and n is the number of periods.

For the first cash flow of $35 000 in three years, we have:
PV1 = 35 000/(1+0.02)^12 = $28 584.68

For the second cash flow of $50 000 in five years, we have:
PV2 = 50 000/(1+0.02)^20 = $34 792.00

For the third cash flow of $80 000 in eight years, we have:
PV3 = 80 000/(1+0.02)^32 = $48 319.07

Therefore, the total present value of the cash flows is:
PV = PV1 + PV2 + PV3 = $28 584.68 + $34 792.00 + $48 319.07 = $103 695.75

To the nearest dollar, the answer is B) $103 696.

Budvar-Brewery Company Expects to Receive the Following Cash Inflows: $35