Practice Problem – Present Value

Practice Question

Cases in Finance
Cash Flow Forecasting
Present Value
Short Answer

In a scenario where a firm expects to sell a project in five years for a cash inflow of $100,000, what is the present value of this cash flow if the discount rate is 10%?

Answer +
A
Step-by-step solutions +

Step 1: Identify the cash flow amount, discount rate, and time period:

Future Cash Flow = $100,000
Discount Rate (r) = 10%
Time (t) = 5 years

Step 2: Use the present value formula: PV = CF / (1 + r)^t

PV = $100,000 / (1 + 0.10)^5 = $100,000 / 1.61051 = $62,092.13

So the present value of $100,000 received in 5 years at a 10% discount rate is approximately $62,092.13.