McCann Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $ 530 2 690 3 875 4 1,090 a. If the discount rate is 10 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) b. What is the present value at 18 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.) c. What is the present value at 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

A. $2,453.95

B. $2,039.46

C. $1,796.14

Explanation:

The computation of the Present value is shown below

= Present value of all yearly cash inflows after applying discount factor

The discount factor should be computed by

= 1 : (1 + rate) ^ years

where,

(A) Rate is 10%

Year = 0,1,2,3,4

Discount Factor:

For Year 1 = 1 : 1.1 ^1 = 0.9091

For Year 2 = 1 : 1.1 ^2 = 0.8264

For Year 3 = 1 : 1.1 ^3 = 0.7513

For Year 4 = 1 : 1.1 ^4 = 0.6830

So, the calculation of a Present value of all yearly cash inflows are shown below

= Year 1 cash inflow * Present Factor of Year 1 + Year 2 cash inflow * Present Factor of Year 2 + Year 3 cash inflow * Present Factor of Year 3 + Year 4 cash inflow * Present Factor of Year 4

= $530 * 0.9091 + $690 * 0.8264 + $875 * 0.7513 + $1,090 * 0.6830

= $481.82 + $570.25 + $657.40 + $744.48

= $2,453.95

(B) Rate is 18%

Year = 0,1,2,3,4

Discount Factor:

For Year 1 = 1 : 1.18 ^ 1 = 0.8475

For Year 2 = 1 : 1.18 ^2 = 0.7182

For Year 3 = 1 : 1.18 ^3 = 0.6086

For Year 4 = 1 : 1.18 ^4 = 0.5158

So, the calculation of a Present value of all yearly cash inflows are shown below

= Year 1 cash inflow * Present Factor of Year 1 + Year 2 cash inflow * Present Factor of Year 2 + Year 3 cash inflow * Present Factor of Year 3 + Year 4 cash inflow * Present Factor of Year 4

= $530 * 0.8475 + $690 * 0.7182 + $875 * 0.6086 + $1,090 * 0.5158

= $449.15 + $495.55 + $532.55 + $562.21

= $2,039.46

(C) Rate is 24%

Year = 0,1,2,3,4

Discount Factor:

For Year 1 = 1 : 1.24 ^ 1 = 0.8065

For Year 2 = 1 : 1.24 ^2 = 0.6504

For Year 3 = 1 : 1.24 ^3 = 0.5245

For Year 4 = 1 : 1.24 ^4 = 0.4230

So, the calculation of a Present value of all yearly cash inflows are shown below

= Year 1 cash inflow * Present Factor of Year 1 + Year 2 cash inflow * Present Factor of Year 2 + Year 3 cash inflow * Present Factor of Year 3 + Year 4 cash inflow * Present Factor of Year 4

= $530 * 0.8065 + $690 * 0.6504 + $875 * 0.5245 + $1,090 * 0.4230

= $427.42 + $448.75 + $458.93 + $461.04

= $1,796.14