Helen Ashley is expecting cash flows of $50,000, $75,000, $125,000, and $250,000 from an inheritance over the next four years. If she can earn 11 percent on any investment that she makes, what is the present value of her inheritance? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The present value of an inheritance is the sum of the present values of each cash flow. The present value of a cash flow is calculated by dividing the cash flow by (1 + r)^n, where r is the interest rate and n is the number of years. In this case, the interest rate is 11 percent and the number of years is 4. The present value of each cash flow is:$50,000 / (1 + 0.11)^1 = $44,955$75,000 / (1 + 0.11)^2 = $62,612$125,000 / (1 + 0.11)^3 = $102,254$250,000 / (1 + 0.11)^4 = $152,177The present value of the inheritance is the sum of these present values, which is $361,998.

Helen Ashley Is Expecting Cash Flows of $50,000, $75,000, $125,000