How did they calculate the present value? YearCash flowsPresent value@4%Cumulative Cash flows(10000)(10000)(10000)128302721.15(7278.85)228302616.49(4662.36)328302515.86(2146.5)428302419.10272.60

The current value of the cash flow or stream of cash flow after discounting is termed as the present…

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How did they calculate the present value?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 9EP

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

How did they calculate the present value?

Year
Cash flows
Present value@4%
Cumulative Cash flows
(10000)
(10000)
(10000)
1
2830
2721.15
(7278.85)
2
2830
2616.49
(4662.36)
3
2830
2515.86
(2146.5)
4
2830
2419.10
272.60

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