Suzanne has identified a project with the following cash flows. What is the present value of the cash flows at time 0 if the interest rate is 17%? $$\begin{array} { | c | c | }
\hline \text { Year } & \text { Cash Flow } \
\hline 1 & \$ 2,000 \
\hline 2 & \$ 650 \
\hline 3 & \$ 375 \
\hline 4 & \$ 1,200 \
\hline
\end{array}$$
A)$3,058.75
B)$3,578.74
C)$2,614.32
D)$4,225.00
E)$3,521.63

Question

Suzanne has identified a project with the following cash flows. What is the present value of the cash flows at time 0 if the interest rate is 17%? $$\begin{array} { | c | c | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 1 & \$ 2,000 \
\hline 2 & \$ 650 \
\hline 3 & \$ 375 \
\hline 4 & \$ 1,200 \
\hline
\end{array}$$
A)$3,058.75
B)$3,578.74
C)$2,614.32
D)$4,225.00
E)$3,521.63

Quizplus · Accepted Answer

The present value of the cash flows is $3,058.75. This is calculated by taking the sum of the present values of each individual 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 from the present. In this case, the interest rate is 17% and the cash flows occur at the end of each year. Therefore, the present value of the cash flow in year 1 is $2,000 / (1 + 0.17)^1 = $1,709.40. The present value of the cash flow in year 2 is $650 / (1 + 0.17)^2 = $462.39. The present value of the cash flow in year 3 is $375 / (1 + 0.17)^3 = $251.56. The present value of the cash flow in year 4 is $1,200 / (1 + 0.17)^4 = $635.40. The sum of these present values is $3,058.75.

Suzanne Has Identified a Project with the Following Cash Flows