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

Question

Huggins Co. has identified an investment project with the following cash flows. Year 2 4 Cash Flow S 730 950 1,210 1,300 If the discount rate is 8 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value What is the present value at 18 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value What is the present value at 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present value

Explanation / Answer

Present Value = Amounts * Present Value of Discounting Factor ( Rate, Time)

At 8%,

Present Value = $ 730 * 1/(1.08) ^ 1 + $ 950* 1/(1.08) ^ 2 + $ 1,210 * 1/(1.08) ^ 3 + $ 1,300 * 1/(1.08) ^ 4

= $ 3,406.67

Hence the correct answer is $ 3,406.67

At 18%,

Present Value = $ 730 * 1/(1.18) ^ 1 + $ 950* 1/(1.18) ^ 2 + $ 1,210 * 1/(1.18) ^ 3 + $ 1,300 * 1/(1.18) ^ 4

= $ 2,707.89

Hence the correct answer is $ 2,707.89

At 24%,

Present Value = $ 730 * 1/(1.24) ^ 1 + $ 950* 1/(1.24) ^ 2 + $ 1,210 * 1/(1.24) ^ 3 + $ 1,300 * 1/(1.24) ^ 4

= $ 2,391.05

Hence the correct answer is $ 2,391.05

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