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?
991.38
To calculate the combined present value of the cash flows, we need to determine the present value of each individual cash flow and then sum them up.
First, let's calculate the present value of each cash flow using the formula:
PV = CF / (1 + r)^n
Where PV is the present value, CF is the cash flow, r is the interest rate, and n is the number of years.
1. Present value of the $350 cash flow in one year:
PV1 = $350 / (1 + 0.10)^1 = $350 / 1.10 = $318.18 (rounded to two decimal places)
2. Present value of the $1,000 cash flow in year 3:
PV2 = $1,000 / (1 + 0.10)^3 = $1,000 / 1.10^3 = $1,000 / 1.331 = $751.31 (rounded to two decimal places)
3. Present value of the $1,000 cash flow in year 4:
PV3 = $1,000 / (1 + 0.10)^4 = $1,000 / 1.10^4 = $1,000 / 1.4641 = $682.59 (rounded to two decimal places)
Now, we can calculate the combined present value by summing up the present values of each cash flow:
Combined PV = PV1 + PV2 + PV3
Combined PV = $318.18 + $751.31 + $682.59
Combined PV = $1,751.08
Therefore, the combined present value of these cash flows is $1,751.08.