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If the interest rate is 5% and cash flows are $500 at the end of year one, $1000 at the end of year two, and $2000 at the end of year three, what is the present value of these cash flows? Instead of this stream of revenues, would you consider receiving a lump sum of $3200 now?
If the interest rate is 5% and cash flows are $500 at the end of year one, $1000 at the end of year two, and $2000 at the end of year three, what is the present value of these cash flows? Instead of this stream of revenues, would you consider receiving a lump sum of $3200 now?
Expert Solution
Yes, you would consider receiving a lump sum of $3200 now as present value of cash flows is less than lump sum amount.
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