PV in total is $2,736.39
The discounted cash flow (DCF) formula is the sum of the cash flow for each period divided by one plus the discount rate (WACC) raised to the power of the period number.
Providing the following details:
Annual Cash Flow
1 $ 870\s2 950\s3 0\s4 1,540
We must first determine the actual annual discount rate:
Discount rate each quarter = 0.08/4 = 0.02.
Real annual interest rate is equal to [(1+i)n]. - 1
Real annual interest rate is equal to [(1.024) - 1].
Rate of real yearly interest = 0.08243
We can now determine the cash flows' present value:
PV = Cf/(1 + I ) n
Year 1= 870/1.08243= 803.75
Year 2= 950/1.08243^2= 810.82
Year 4= 1,540/1.08243^4= 1,121.82
PV in total is $2,736.39
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