The appropriate discount rate for the following cash flows is 6 percent compounded quarterly. |
Year | Cash Flow |
1 | $600 |
2 | 600 |
3 | 0 |
4 | 1,300 |
What is the present value of the cash flows? |
Multiple Choice
$967.94
$2,122.18
$2,079.74
$2,129.76
$2,164.62
Ans $2,122.18
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 A ( (i) * (ii) ) |
1 | 600 | 1/((1+6.14%)^1) | 0.942 | 565.29 |
2 | 600 | 1/((1+6.14%)^2) | 0.888 | 532.59 |
3 | 0 | 1/((1+6.14%)^3) | 0.836 | - |
4 | 1300 | 1/((1+6.14%)^4) | 0.788 | 1,024.30 |
NPV | 2,122.18 |
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