Question

Wilkinson Co. has identified an investment project with the following cash flows:

    

Year				Cash Flow
	1			$	740
	2				970
	3				1,230
	4				1,325

  

If the discount rate is 9 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Present value

$

If the discount rate is 18 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Present value

$

  

If the discount rate is 24 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Present value

$

Answer 1

If discount rate in 9% -

Present value (PV) of cash flows = Sum of [cash flows (CF)/ (1+r) ^t]

Where,

Discount rate or required rate of return r =9%

And time period t = 1, 2, 3 and 4

CF1 = $740, CF2 = $970, CF3 = $1,230 and CF4 = $1,325

Therefore,

PV = $740/ (1+9%) ^1 + $970/ (1+9%) ^2 + $1,230/ (1+9%) ^3 + $1,325/ (1+9%) ^4

= $678.90 + $816.43 + $949.79 + $938.66

= $3,383.78

The present value of the Cash flows is $3,383.78

If discount rate in 18% -

Present value (PV) of cash flows = Sum of [cash flows (CF)/ (1+r) ^t]

Where,

Discount rate or required rate of return r =18%

And time period t = 1, 2, 3 and 4

CF1 = $740, CF2 = $970, CF3 = $1,230 and CF4 = $1,325

Therefore,

PV = $740/ (1+18%) ^1 + $970/ (1+18%) ^2 + $1,230/ (1+18%) ^3 + $1,325/ (1+18%) ^4

= $627.12 + $696.64 + $748.62 + $683.42

= $2,755.79

The present value of the Cash flows is $2,755.79

If discount rate in 24% -

Present value (PV) of cash flows = Sum of [cash flows (CF)/ (1+r) ^t]

Where,

Discount rate or required rate of return r =24%

And time period t = 1, 2, 3 and 4

CF1 = $740, CF2 = $970, CF3 = $1,230 and CF4 = $1,325

Therefore,

PV = $740/ (1+24%) ^1 + $970/ (1+24%) ^2 + $1,230/ (1+24%) ^3 + $1,325/ (1+24%) ^4

= $596.77 + $630.85 + $645.12 + $560.44

= $2,433.19

The present value of the Cash flows is $2,433.19