Question

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

Year	Cash Flow
1	$900
2	1,100
3	1,270
4	1,160

Required:
(a)	If the discount rate is 11 percent, what is the present value of these cash flows?
	(Click to select)3,769.934,430.003,396.343,321.653,473.74

(b)	What is the present value at 18 percent?
	(Click to select)4,430.003,450.312,865.183,754.232,923.99

(c)	What is the present value at 30 percent?
	(Click to select)2,369.194,430.002,327.402,286.823,025.63

Answer 1

(A) Present value:

Discount rate (r) = 11%

[Cash flow at year 1 / {1/( 1+r)}¹] + [Cash flow at year 2 / {1/( 1+r)}²] + [Cash flow at year 3 / {1/( 1+r)}³] + [Cash flow at year 1 / {1/( 1+r)}⁴]

=[900 / {1/(1+.11)}] + [1100 / {1/(1+.11)}²] + [1270 / {1/(1+.11)}³] + [1160 / {1/(1+.11)}⁴]

=810.81 +892.78 + 928.61 + 764.13

= $3,396.343

(B)Present value:

Discount rate (r) = 18%

[Cash flow at year 1 / {1/( 1+r)}¹] + [Cash flow at year 2 / {1/( 1+r)}²] + [Cash flow at year 3 / {1/( 1+r)}³] + [Cash flow at year 1 / {1/( 1+r)}⁴]

=[900 / {1/(1+.18)}] + [1100 / {1/(1+.18)}²] + [1270 / {1/(1+.18)}³] + [1160 / {1/(1+.18)}⁴]

=762.71 +790.00 + 772.96 + 598.32

= $2,923.99

(C) Present value:

Discount rate (r) = 30%

[Cash flow at year 1 / {1/( 1+r)}¹] + [Cash flow at year 2 / {1/( 1+r)}²] + [Cash flow at year 3 / {1/( 1+r)}³] + [Cash flow at year 1 / {1/( 1+r)}⁴]

=[900 / {1/(1+0.30)}] + [1100 / {1/(1+0.30)}²] + [1270 / {1/(1+0.30)}³] + [1160 / {1/(1+0.30)}⁴]

=692.31 +650.89 + 578.06 + 406.15

= $2,327.40