Question
Asked Oct 5, 2019
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An investment project has the following cash flows.
2.
001 :
Cash Flow
Year
060
$300
1
$300
2
01 $300
3
4F
$500
4
$500
21
bdl $500
6
Suppose the discount rate is 8%.
(a) What is the value of the cash flows today? 2
00
14
(b) What is the value of the cash flows at year 6?
(c) What is the value of the cash flows at year 3?
3E
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An investment project has the following cash flows. 2. 001 : Cash Flow Year 060 $300 1 $300 2 01 $300 3 4F $500 4 $500 21 bdl $500 6 Suppose the discount rate is 8%. (a) What is the value of the cash flows today? 2 00 14 (b) What is the value of the cash flows at year 6? (c) What is the value of the cash flows at year 3? 3E

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Expert Answer

Step 1

1.

Calculate the present value as follows:

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А В C D PV factors S% |Present value 300.00 0.92592592592593 S 300.00 0.85733882030178S 300.00 0.79383224102017 500.00 0.73502985279645S 500.00 0.68058319703375S 500.00 0.63016962688311S 1 Year Cash flows 2 1 277.78 2 257.20 3 3 238.15 4 $ 367.51 5 340.29 6 315.08 7 S 1,796.02 Present value n LO

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Step 2

Workings:

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A 1 Year Cash flows PV factors @ 8% ] Present value 2 1 -B2*C2 |-1/ ( (1+8%)^A2) |300 300 =1/((1+8%)^A3) B3*C3 3 2 300 |=1/((1+8%)^A4) =B4*C4 4 3 500 = 1 / (( 1+8%)^A5) 5 4 B5*C5 500 =1/((1+8%)^A6) B6*C6 6 5 500 |- 1/ ((1+8%)^A7) 7 6 -B7*C7 |-SUM(D2:D7) Present value

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Step 3

2.

Calculate the value at ye...

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FV PVx(1+r) 2 -S1,796.02x (1+8%) $1,796.02x1.586874322944 =S2,850.05802149388 or S2,850.06

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