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Q: cash flows ( Answered 5 out of 5 stars,   0 Comments )
Subject: cash flows
Category: Business and Money > Accounting
Asked by: fatima1102-ga
List Price: $2.00
Posted: 10 Sep 2005 23:30 PDT
Expires: 10 Oct 2005 23:30 PDT
Question ID: 566665
An investment offers cash flows of $300, -$200, -$125 each year 
            starting at time zero. What is the net present value of this 
            investment if the market rate of interest is 15%?
Subject: Re: cash flows
Answered By: elmarto-ga on 11 Sep 2005 07:47 PDT
Rated:5 out of 5 stars
Hi again fatima!
In order to answer this, you would need to use the same formula I
provided in the previous question I answered for you (Question ID
566664), found in the link:

Calculating the Present and Future Value of Annuities

In this case, the present value of this investment can be calculated as:

PV = 300 + (-200)/1.15 + (-125)/1.15^2

Notice that the first payment is not discounted, because according to
your question, it's done today. The -$200 payment is made one year
from now; and the $-125 one is made two years from now. The formula
above gives that the present value of this investment is $31.56.

I hope this helps!
Best wishes,
fatima1102-ga rated this answer:5 out of 5 stars

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