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17 September, 00:27

Rainbow bought a new home entertainment system today from Andre's Electronics. She will receive a cash rebate of $230 from Andre's Electronics today, pay $720 to Andre's Electronics in 1 year, receive a cash rebate of $1,640 from Andre's Electronics in 2 years, and pay $4,980 to Andre's Electronics in 4 years. If the discount rate is 18.94 percent, then what is the present value of the cash flows associated with this transaction?

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  1. 17 September, 01:10
    0
    -$1,704.45

    Explanation:

    The computation of the present value is shown below:

    Year Cash inflows Discount factor Present value

    @18.94%

    0 $230.00 1 $230.00

    1 - $720.00 0.8407600471 - $605.35

    2 $1,640.00 0.7068774568 $1,159.28

    3 $0.00 0.5943143238 $0.00

    4 - $4,980.00 0.4996757389 - $2,488.39

    Total present value is - $1,704.45

    The discount factor is computed below:

    = 1 : (1 + rate) ^years
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