Zevon Co. has identified an investment project with the following cash flows.

Zevon Co. has identified an investment project with the following cash flows.

Year	Cash Flow
1		$	1,190
2			1,090
3			1,540
4			1,900

Requirement 1:

Assume the discount rate is 10 percent, what is the present value of these cash flows? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Present value

$

Requirement 2:

What is the present value at 18 percent? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Present value

$

Requirement 3:

What is the present value at 24 percent? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Present value

$

rev: 04-30-2011

Explanation:

To solve this problem, we must find the PV of each cash flow and add them. To find the PV of a lump sum, we use:

PV = FV / (1 + r)t

PV@10% = $1,190 / 1.10 + $1,090 / 1.102 + $1,540 / 1.103 + $1,900 / 1.104 = $4,437.39

PV@18% = $1,190 / 1.18 + $1,090 / 1.182 + $1,540 / 1.183 + $1,900 / 1.184 = $3,708.59

PV@24% = $1,190 / 1.24 + $1,090 / 1.242 + $1,540 / 1.243 + $1,900 / 1.244 = $3,279.93

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

CFo	$0	CFo	$0	CFo	$0
C01	$1,190	C01	$1,190	C01	$1,190
F01	1	F01	1	F01	1
C02	$1,090	C02	$1,090	C02	$1,090
F02	1	F02	1	F02	1
C03	$1,540	C03	$1,540	C03	$1,540
F03	1	F03	1	F03	1
C04	$1,900	C04	$1,900	C04	$1,900
F04	1	F04	1	F04	1
I = 10		I = 18		I = 24
NPV CPT		NPV CPT		NPV CPT
$4,437.39		$3,708.59		$3,279.93