You are considering a project with cash flows of $16,500, $25,700, and $18,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a discount rate of 7.9 percent?

Question

Morgan King

Business

28 April, 19:30

You are considering a project with cash flows of $16,500, $25,700, and $18,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a discount rate of 7.9 percent?

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Answers (1)

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Fowler · Answer 1

The answer is: $51.695,00

Explanation:

To calculate the present value you need to use the Net Present Value. The NPV is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

The formula is:

n

NPV = ∑ Rt / (1+i) ^t

t-1

where:

R t = Net cash inflow-outflows during a single period t

i=Discount rate or return that could be earned in alternative investments

t=Number of timer periods

In this exercise:

NPV = [16500 / (1,079^1) ]+[25700 / (1,079^2) ]+[18000 / (1.079^3) ]

NPV = $51695