Consider the Following Timeline Detailing a Stream of Cash Flows

question 9

Multiple Choice

Consider the following timeline detailing a stream of cash flows: If the current market rate of interest is 8%, then the present value (PV) of this stream of cash flows is closest to ________.

• A) $242
• B) $581
• C) $484
• D) $774

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Definitions:

Discount Rate

The interest rate used in discounted cash flow (DCF) analyses to determine the present value of future cash flows.

Simple Rate

An interest calculation method where the interest charge is calculated only on the principal amount, without compounding.

Net Operating Income

A company's income after operating expenses have been subtracted but before income taxes and interest are deducted.

Initial Investment

The amount of money used to start a project, purchase an asset, or initiate operations in a business.