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The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 $250,000$37,500$180,000$300,000$750,000$725,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 6.5%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar

Sagot :

Parrain

Answer: $1,694,292

Explanation:

The present value is simply the sum of the discounted value of the various cash flows.

[tex]= \frac{250000}{1 + 0.065} + \frac{37500}{1.065^{2} } + \frac{180000}{1.065^{3}} + \frac{300000}{1.065^{4}} + \frac{750000}{1.065^{5}} + \frac{725000}{1.065^{6}}[/tex]

= $1,694,291.63

= $1,694,292

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