Machine Co. has identified an investment project with the following cash flows.

Question

Machine Co. has identified an investment project with the following cash flows. If the discount rate is 5 percent, what is the present value of these cash flows? What is the present value at 13 percent? At 18 percent?

YEAR CASH FLOW

1 $585  

2 $815

3 $1,630

4 $2,140

(Stephen 120) Stephen, Ross,, Westerfield, Randolph, Jeffrey, Jaffe, Jordan, Bradford. Corporate Finance: Core Principles and Applications, 5th Edition. McGraw-Hill Learning Solutions, 01/2017. VitalBook file. The citation provided is a guideline. Please check each citation for accuracy before use.

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

At 5%:

Present value=585/1.05+815/1.05^2+1630/1.05^3+2140/1.05^4

=$4465.01(Approx).

At 13%:

Present value=585/1.13+815/1.13^2+1630/1.13^3+2140/1.13^4

=$3598.14(Approx).

At 18%:

Present value=585/1.18+815/1.18^2+1630/1.18^3+2140/1.18^4

=$3176.94(Approx).

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