Question

$200 is received at the end of year 1, $300 is received at the end of year 2, and $400 is received at the end of year 3. If the opportunity cost is 10 percent, their combined present value today is __________.

Answer 1

Answer:

$731

Step-by-step explanation:

Data given in the question

Amount received at the end of year 1 = $200

Amount received at the end of year 2 = $300

Amount received at the end of year 3 = $400

Opportunity cost = 10%

The computation of the combined present value today is shown below:

Year Cash flow PVF at 10% Present value  

1               $200               0.909         $182

2              $300               0.826              $248

3              $400                0.751              $301

Total combined present value is         $731

The discount factor is computed below:

=  1 ÷ (1 + Interest rate)^number of years