Helen Ashley is expecting cash flows of $50,000, $75,000, $125,000, and $250,000 from an inheritance over the next four years. If she can earn 11 percent on any investment that she makes, what is the present value of her inheritance

Present value of Helen's inheritance is $361,997.25

Explanation:

We know,

Present value of cash flows = ∑

Given,

Cash flows for 1st, 2nd, 3rd, and 4th year = $50,000, $75,000, $125,000, and $250,000.

Interest rate, i = 11% = 0.11

Number of period, n = 4

Therefore,

Present value of cash flows = [$50,000 ÷ ] + [$75,000 ÷ ] + [$125,000 ÷ ] + [$250,000 ÷ ]

Present value of cash flows = ($50,000 ÷ 1.11) + ($75,000 ÷ 1.2321) + ($125,000 ÷ 1.3676) + ($250,000 ÷ 1.5181)

Present value of cash flows = $45,045.05 + $60,871.68 + $91,400.99 + $164,679.53

Present value of cash flows = $361,997.25

Therefore, Present value of Helen's inheritance is $361,997.25

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