The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years:

Annual Cash Flows

Year 1 Year 2 Year 3 Year 4 Year 5

$250,000 $37,500 $480,000 $300,000 $550,000

Required:

a) The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar?

Total = $1410,274.89

Explanation:

Giving the following information:

Year 1 Year 2 Year 3 Year 4 Year 5

$250,000 $37,500 $480,000 $300,000 $550,000

Interest rate = 4%

To determine the present value, we need to use the following formula on each cash flow:

PV = FV / (1+i) ^n

Year 1 = 250,000/1.04 = 240,384.61

Year 2 = 37,500/1.04^2 = 34,670.86

Year 3 = 480,000/1.04^3 = 426,718.25

Year 4 = 300,000/1.04^4 = 256,441.26

Year 5 = 550,000/1.04^5 = 452,059.91

Total = $1410,274.89