Question

Furious Fred expects cash flows from an investment as follows: Yr 1 $3,000, Yr 2 $5,000, Yr 3 $8,000 Using an opportunity cost of capital of 5.6%, the present value is: $14,118 $14,523 $14,361 $14,909 none of the above

Answer 1

Answer:

$14,118

Explanation:

The computation of the present value is shown below:

Years           Annual cash flows  Discounting factor @5.6%     Present value

1                    $3,000.00               0.946969697                      $2,840.91

2                  $5,000.00               0.896751607                      $4,483.76

3                  $8,000.00                0.8491965975              $6,793.57

Total                                                                                             $14,118.24

The discount factor is computed below

= 1 ÷ (1 + rate)^years

like for year 1

= 1 ÷ (1 + 0.056)^1