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Your consulting firm will produce cash flows of $195,000 this year, and you expect cash flow to keep pace with any increase in the general level of prices. The interest rate currently is 5.1%, and you anticipate inflation of about 1.1%. a. What is the present value of your firm’s cash flows for years 1 through 4? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. How would your answer to (a) change if you anticipated no growth in cash flow? (Do not round intermediate calculations. Round your answer to 2 decimal places.)



Your consulting firm will produce cash flows of $195,000 this year, and you expect cash flow to keep pace with any increase i
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Answer #1

a.

Present Value = 195,000/(1.051) + 195,000(1.011)/(1.051)2 + 195,000(1.011)2/(1.051)3 + 195,000(1.011)3/(1.051)4

Present Value = $700,846.86

b.

Calculating Present Value,

Using TVm Calculation,

PV = [FV = 0, PMT = 195,000, N = 4, I = 0.051]

PV = $689,857.17

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