Wainright Co. has identified an investment project with the following cash flows.
Year Cash Flow
1 $ 830
2 1,150
3 1,410
4 1,550
1 $ 830
2 1,150
3 1,410
4 1,550
If the discount rate is 8 percent, what is the present value of these cash flows?
What is the present value at 16 percent?
What is the present value at 25 percent?
To find the PV of a lump sum, we use:
PV = FV / (1 + r)^t
PV@8% = $830 / 1.08 + $1,150 / 1.08^2 + $1,410 / 1.08^3 + $1,550 / 1.08^4 = $4,013.06
PV@16% = $830 / 1.16 + $1,150 / 1.16^2 + $1,410 / 1.16^3 + $1,550 / 1.16^4 = $3,329.53
PV@25% = $830 / 1.25 + $1,150 / 1.25^2 + $1,410 / 1.25^3 + $1,550 / 1.25^4 = $2,756.80
PV@16% = $830 / 1.16 + $1,150 / 1.16^2 + $1,410 / 1.16^3 + $1,550 / 1.16^4 = $3,329.53
PV@25% = $830 / 1.25 + $1,150 / 1.25^2 + $1,410 / 1.25^3 + $1,550 / 1.25^4 = $2,756.80
Note ^ is used for power .
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