Given a 7 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $1,350, $1,550, $1,550, and $1,850, respectively. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Question

Quincy Drake

Business

13 September, 01:10

Given a 7 percent interest rate, compute the present value of payments made in years 1, 2, 3, and 4 of $1,350, $1,550, $1,550, and $1,850, respectively. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

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Answers (1)

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Adrian Salas · Answer 1

The present value of cash flows is $ 5,292.13

Explanation:

The present value is today's equivalence of the company's future cash flow discounted using the 7% interest rate as a discount rate.

Formula for pv of a cash flow=cash flow / (1+r) ^n

r is the 7% interest rate

n is the relevant year each cash flow relates to

PV=$1,350 / (1+7%) ^1+$1550 / (1+7%) ^2+$1550 / (1+7%) ^3+$1850 / (1+7%) ^4=

$ 5,292.13