Question

1. Huggins Co. has identified an investment project with the following cash flows. If the discount rate is 10%, what is the present value of these cash flows? What is the present value at 18%? Show your work.

Year	Cash Flow
1	$680
2	$810
3	$940
4	$1,150

Answer 1

Discount rate at 10%

Present value of cash Flows

= [$680 / (1.10)¹] + [$810 / (1.10)²] + [$940/ (1.10)³] + [$1,150 / (1.10)⁴]

Present value of cash Flows = $618.18 + $669.42 + $706.24 + $785.47

Present value of cash Flows = $2,779.305

Discount rate at 18%

Present value of cash Flows

= [$680 / (1.18)¹] + [$810 / (1.18)²] + [$940/ (1.18)³] + [$1,150 / (1.18)⁴]

Present value of cash Flows = $2,323.27