The Present Value of a Complex Cash Flow Stream What is the present value of cash flows of $500 at the end of years 1 through 3, a cash flow of a negative $800 at the end of year 4, and cash flows of $800 at the end of years 5 through 10 if the appropriate discount rate is 5%?

The Present Value of a Complex Cash Flow Stream What is the present value of cash flows of $500 at the end of years 1 through 3, a cash flow of a negative $800 at the end of year 4, and cash flows of $800 at the end of years 5 through 10 if the appropriate discount rate is 5%?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 2P

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Concept explainers

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.

Question

The Present Value of a Complex Cash Flow Stream
What is the present value of cash flows of $500 at the end of
years 1 through 3, a cash flow of a negative $800 at the end of
year 4, and cash flows of $800 at the end of years 5 through 10 if
the appropriate discount rate is 5%?

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