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 $450,000 $550,000 the cfo of the company believes that an appropriate annual interest rate on this investment is 9%. what is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? $1,307,822 $767,500 $1,625,000 $2,142,500

PV of the cash flow: $1,307,822

Explanation:

We will calculate the present value of a lump sum for each cash flow:

cashflow 250,000.00

time   1.00

rate  0.09

PV   229,357.80

cashflow 37,500.00

time   2.00

PV   31,563.00

cashflow 480,000.00

time   3.00

rate  0.09

PV   370,648.07

cashflow 450,000.00

time   4.00

rate  0.09

PV   318,791.34

cashflow 550,000.00

time   5.00

rate  0.09

PV   357,462.26

Then, we will add each present value:

year 1:       229,357.7982

year 2:         31,562.99975

year 3:       370,648.0704

year 4:         318,791.345

year 5:        357,462.2625  

total PV  1,307,822.476

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