Answer:
Total PV= $2,736.39
Explanation:
Giving the following information:
Year Cash Flow
1 $ 870
2 950
3 0
4 1,540
First, we need to calculate the real annual discount rate:
Quarterly Discount rate= 0.08/4= 0.02
Real annual interest rate= [(1+i)^n] - 1
Real annual interest rate= [(1.02^4) - 1]
Real annual interest rate= 0.08243
Now, we can calculate the present value of the cash flows:
PV= Cf/(1+i)^n
Year 1= 870/1.08243= 803.75
Year 2= 950/1.08243^2= 810.82
Year 4= 1,540/1.08243^4= 1,121.82
Total PV= $2,736.39
