Consider the following cash flows: Date Cash Received Amount of Cash
1/1/17 $100
1/1/18 $100
1/1/19 $500
1/1/20 $100
What is the value on 1/1/16 of the above cash flows? Use an 8% discount rate, and round your answer to the nearest $1.00.

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the cash flows is $649.00. The present value of a cash flow is the value of the cash flow today, taking into account the time value of money. The time value of money is the concept that money today is worth more than money in the future, because money today can be invested and earn interest. The present value of a cash flow can be calculated using the following formula:PV = CF / (1 + r)^nwhere:PV is the present value of the cash flowCF is the amount of the cash flowr is the discount raten is the number of years from today until the cash flow is receivedIn this case, the cash flows are $100 on 1/1/17, $100 on 1/1/18, $500 on 1/1/19, and $100 on 1/1/20. The discount rate is 8%. The present value of the cash flows is:PV = $100 / (1 + 0.08)^1 + $100 / (1 + 0.08)^2 + $500 / (1 + 0.08)^3 + $100 / (1 + 0.08)^4PV = $92.59 + $85.53 + $423.08 + $82.64PV = $649.00

Consider the Following Cash Flows: Date Cash Received Amount of Cash