Given the following cash flows, what is the present value if the
discount rate is 8%?

Year             1                 2                 3               4
Cash flow        $200              $350              $800           
$1125

Hi pheifer!
The formula for the present value is given at the following link:

Net Present Value
http://www.prenhall.com/divisions/bp/app/cfldemo/CB/NetPresentValue.html

Using this formula, we find that the net present value of the cash
flow in your answer can be computed as:

200/(1.08)^1 + 350/(1.08)^2 + 800/(1.08)^3 + 1125/(1.08)^4

(I have assumed here that you're standing that the first cash flow
will be received one year from now)

This calculation gives $1,993.50, so that's the present value of the
cash flows given the 8% discount rate.


Google search strategy:
present value
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I hope this helps! If you have any doubts regarding this asnwr, please
request a clarification before rating it. Otherwise I await your
rating and comments.

Best wishes!
elmarto

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Request for Answer Clarification by pheifer-ga on 14 Oct 2003 13:24 PDT

Thanks for answering the question, but it's multiple choice and that
wasn't one of the choices. They have:
A)$1,115.07
B)$1,947.23
C)$2,165.70
D)$2,358.96
E)$2,922.62

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Clarification of Answer by elmarto-ga on 14 Oct 2003 14:29 PDT

Hi pheifer!
I'm sorry, I apparently made a calculation mistake. The formula is, as
I said,

200/(1.08)^1 + 350/(1.08)^2 + 800/(1.08)^3 + 1125/(1.08)^4

However, this gives $1,947.23 insted of $1,993.50 as I mentioned in my
answer. The correct answer is then (B).

Sorry for any inconvenience this might have caused you.

Best regards,
elmarto

This was very helpful. Thank you!