Assume that the interest rate is greater than zero. Which of the following cash-inflow streams totaling $1,500 would you prefer? The cash flows are listed on order for year 1, year 2 and year 3 respectively.   Select one: a. $300; $500; $ 700 b. $700; $500; $ 300 c. Any OF the above since they all sum to $1,500 d. $500; $500; $ 500

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.