Question

Andersen Corp will undertake a project that will produce cash flows of $50,000 in year 1, $60,000 in year 2, $70,000 in year 3, $75,000 in year 4 and $68,000 in year 5, what is the present value of those cash flows if Andersen's required rate of return on the project is 15 percent?

Answer 1

$211,562.53

Step-by-step explanation:

The present value discounts the cash flows from an investment at its discount rate.

The formula for finding present value can be found in the attached image.

Present value can be calculated using a financial calculator:

Cash flows in year 1 = $50,000

Cash flows in year 2 =$60,000

Cash flows in year 3 =$70,000

Cash flows in year 4 = $75,000

Cash flows in year 5 = $68,000

Discount rate = 15%

Present value = $211,562.53