what is the present value of the cash flow at the end of year I the cash flow is $1000 and $2000 at the end of
Answers
Answer:
What is the present value of a cash flow of $1,000 today, $2,000 at the end of the next year...
Question:
What is the present value of a cash flow of $1,000 today, $2,000 at the end of the next year (time = 1), $3,000 at the end of year 2, and $4,000 at the end of year 3, discounted at 5%?
Present Value:
A present value (PV) of a future cash flow is that amount discounted to the present day, at an applicable rate of interest. The discounting process serves as the basis for a myriad of asset valuation models.
Answer and Explanation: 1
The present value (PV) for each cash flow is computed below.
PV = Cash Flow / (1+Rate)^n
PV0 = $1,000
PV1 = $2,000 / 1.05 = $1,904.76
PV2 = $3,000 / 1.05^2 = $2,721.09
PV3 = $4,000 / 1.05^3 = $3,455.35
The sum of the PVs is $9,081.20.