Question

The appropriate discount rate for the following cash flows is 6 percent compounded quarterly. Year Cash...

The appropriate discount rate for the following cash flows is 6 percent compounded quarterly.
Year Cash Flow
1        $800               
2          500               
3       0               
4 1,400               
What is the present value of the cash flows?

Multiple Choice

  • $2,254.63

  • $2,308.65

  • $2,346.65

  • $1,079.36

  • $2,300.64

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Answer #1

Ans $2,300.64

EAR = ( 1 + r )^n - 1
Compounded Quarterly
EAR= ( 1 + 6%/4)^4 - 1
EAR= 6.14%
Year Project Cash Flows (i) DF@ 6.14% DF@ 6.14% (ii) PV of Project ( (i) * (ii) )
1 800 1/((1+6.14%)^1) 0.942                           753.72
2 500 1/((1+6.14%)^2) 0.888                           443.83
3 0 1/((1+6.14%)^3) 0.836                                    -  
4 1400 1/((1+6.14%)^4) 0.788                       1,103.09
PV                       2,300.64
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