What is the present value of the cash flow, at the end of year I the cash flow is $1,000 and$2,000 at the end of year two. The interest rate given is 10%?a) $3.000b) 439c) S2.562d) 3.200
Answers
Final Answer:
The present value of the cash flow is $2,562.
Explanation:
To calculate the present value of future cash flows, we can use the formula for present value:
PV = CF / (1 + r)^n
Where:
PV = Present Value
CF = Cash Flow
r = Interest Rate
n = Number of years
In this case:
For Year 1: CF = $1,000, r = 10%, n = 1
PV1 = $1,000 / (1 + 0.10)^1 = $909.09 (rounded to two decimal places)
For Year 2: CF = $2,000, r = 10%, n = 2
PV2 = $2,000 / (1 + 0.10)^2 = $1,652.89 (rounded to two decimal places)
Now, we need to find the total present value by adding the present values of both cash flows:
Total PV = PV1 + PV2 = $909.09 + $1,652.89 = $2,562.98 (rounded to two decimal places)
So, the present value of the cash flow is approximately $2,562.
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Final answer:
The present value of future cash flows is calculated by the formula PV = FV / (1 + r)^n, which is used to discount cash flows to their current monetary value. Applying this formula to the given scenario, with cash flows of $1,000 at the end of year 1 and $2,000 at the end of year 2 and an interest rate of 10%, the total present value of the two cash flows is $2,562.
Explanation:
The present value of future cash flows can be calculated by using the formula PV = FV / (1 + r)^n, where FV represents future value of money, r represents the interest rate, and n represents the number of periods. In this case, you have two cash flows- $1,000 at the end of year 1 and $2,000 at the end of year 2 with an interest rate of 10%.
Therefore, the present value of the cash flow at the end of year 1 would be: 1000 / (1 + 0.1)^1 = $909.09. The present value of the cash flow at the end of year 2 would be: 2000 / (1 + 0.1)^2 = $1652.87. So, the total present value of both cash flows would be: $909.09 + $1652.87 = $2,562.
Hence, the answer is option c) $2,562.
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