What Is the Present Value of the Following Set of Cash

question 34

Multiple Choice

What is the present value of the following set of cash flows at an interest rate of 7 percent; $1,000 today, $2,000 at end of year one, $4,000 at end of year three, and $6,000 at end of year five?

• A)$9,731
• B)$10,412
• C)$10,524
• D)$11,524 PV = $1,000/(1.07)⁰ + $2,000/(1.07)¹ = $4,000/(1.07)³ + $6,000/(1.07)⁵
• = $1,000 + 1,869.16 + 3,265.19 + 4,277.92

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Definitions:

Accounts Receivable Period

The mean period required for a company to collect payments due from its clients.

Discounts

A reduction from the usual cost of something, often applied to prompt payment or for certain customers like students or seniors.

Long-Term Debt

Debt that is due for repayment after more than one year's time, often used for significant investments.

Source Of Cash

A source of cash refers to any activity or transaction that brings money into a business or individual's possession, increasing cash flow.