PV of multiple cash flows: Ajax Corp. is expecting the following cash flows-$79,000, $112,000, $164,000, $84,000, and $242,000-over the next five years. If the company's opportunity cost is 15 percent, what is the present value of these cash flows? (Round to the nearest dollar.)

Question

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The correct answer is A. The present value of the cash flows is $429,560. This is calculated by multiplying each cash flow by the present value factor for the corresponding year, and then summing the results. The present value factor for year 1 is 1/(1+0.15)^1 = 0.8696, for year 2 is 1/(1+0.15)^2 = 0.7561, for year 3 is 1/(1+0.15)^3 = 0.6575, for year 4 is 1/(1+0.15)^4 = 0.5718, and for year 5 is 1/(1+0.15)^5 = 0.4972. The present value of the cash flows is then calculated as follows:$79,000 x 0.8696 = $68,906$112,000 x 0.7561 = $84,539$164,000 x 0.6575 = $107,990$84,000 x 0.5718 = $48,059$242,000 x 0.4972 = $120,066Total present value = $429,560

PV of Multiple Cash Flows: Ajax Corp