6. You are scheduled to pay a $350 cash flow in one year, and receive a $1,000 cash flow in years 3 and 4. If interest rates are 10 percent per year, what is the combined present value of these cash flows?

What is your School SUBJECT?

Finance

To find the combined present value of these cash flows, we need to discount each cash flow back to its present value using the interest rate of 10 percent per year.

First, let's calculate the present value of the $350 cash flow in one year. We use the formula for present value (PV):

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years.

PV = $350 / (1 + 0.10)^1
PV = $350 / 1.10
PV ≈ $318.18

Next, let's calculate the present value of the $1,000 cash flows in years 3 and 4. Since these cash flows are two years away, we need to discount them twice.

PV = FV / (1 + r)^n

PV = $1,000 / (1 + 0.10)^3
PV = $1,000 / 1.10^3
PV = $1,000 / 1.331
PV ≈ $751.87

Now, let's find the combined present value of these cash flows by adding the present values we calculated:

Combined PV = PV of $350 cash flow + PV of $1,000 cash flows
Combined PV ≈ $318.18 + $751.87
Combined PV ≈ $1,070.05

Therefore, the combined present value of these cash flows is approximately $1,070.05.