PV of multiple cash flows: Pam Gregg 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 per cent 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 the inheritance is $361,998. This is calculated by multiplying each cash flow by the present value factor for the appropriate number of years and then summing the results. The present value factor for one year at 11% is 0.9009, for two years it is 0.8116, for three years it is 0.7312, and for four years it is 0.6587. So, the present value of the inheritance is:$50,000 x 0.9009 + $75,000 x 0.8116 + $125,000 x 0.7312 + $250,000 x 0.6587 = $361,998

PV of Multiple Cash Flows: Pam Gregg Is Expecting Cash