Answered: What is the present value of the…

What is the present value of the following set of cash flows at an interest rate of 7%; $2000 at the end of year one, $4000 at the end of year two, and $6000 at the end of year three?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 19E

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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.

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What is the present value of the following set of cash flows at an interest rate of 7%; $2000 at the end of year one, $4000 at the end of year two, and $6000 at the end of year three?

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