Basic present value calculations Calculate the present value of the following ca

Question

Basic present value calculations

Calculate the present value of the following cash flows, rounding to the nearest dollar:

a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.

b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.

c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return.

d. An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return.

Explanation / Answer

case 1 P = 12000/(1.12)^5 = 6809$ Case 2 P = 16000[(1.14^12-1)/0.14(1.14)^12] = 90,565$ case 3 P = 15000/1.1 + 10000/1.1^3 = 21149.5$ Case 4 P = 8000[(1.16^3-1)/0.16(1.16)^3] + 10000/1.16^4 = 23490$

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