Question

You are offered an investment that will pay you $792, $540, $780, $1,183, $1,749, $895, $1,189, and $1,416 over the next eight years (one cash payment per year). You require an 9.1% return on your investment. What is the most you would invest today? (In other words, what is the present value of this cash stream?) Round to the nearest cent.  

Answer 1

Present Value of this cash tream is $ 5,629.23

Working:

Present value of cash stream is calculated as follows:
Year	Cash Flow	Discount factor	Present Value
a	b	c=1.091^-a	d=b*c
1	$792.00	0.9166	$725.94
2	$540.00	0.8401	$453.67
3	$780.00	0.7701	$600.65
4	$1,183.00	0.7058	$835.00
5	$1,749.00	0.6470	$1,131.53
6	$895.00	0.5930	$530.73
7	$1,189.00	0.5435	$646.26
8	$1,416.00	0.4982	$705.45
	Total		$5,629.23

Required return of 9.1% is used for discount factor calculation.