The present value of receiving $1,000 at year 1, $2,000 at year 2, and $3,000 at year 3 when the discount rate is 7% is approximately:

The present value of receiving $1,000 at year 1, $2,000 at year 2, and $3,000 at year 3 when the discount rate is 7% is approximately:

• A. 3000
• B. 3200
• C. 3500
• D. 3131

Answer: (D)

Discounting future cash inflows back to today is done by bringing each amount to present value using the rate for its year. Each cash flow is divided by (1 + r)^t, where r is the discount rate and t is the number of years until the cash flow occurs. So the present value equals 1000/(1.07) + 2000/(1.07)^2 + 3000/(1.07)^3. Computing: 1000/1.07 ≈ 934.58; 2000/1.07^2 ≈ 1747.04; 3000/1.07^3 ≈ 2449.56. Sum ≈ 5,131.18. Therefore the present value is about $5,131. The options given don’t match this value, suggesting a possible misprint in the choices. The main takeaway is how to apply the discounting process to each year and sum the results.

Discounting future cash inflows back to today is done by bringing each amount to present value using the rate for its year. Each cash flow is divided by (1 + r)^t, where r is the discount rate and t is the number of years until the cash flow occurs. So the present value equals 1000/(1.07) + 2000/(1.07)^2 + 3000/(1.07)^3. Computing: 1000/1.07 ≈ 934.58; 2000/1.07^2 ≈ 1747.04; 3000/1.07^3 ≈ 2449.56. Sum ≈ 5,131.18. Therefore the present value is about $5,131. The options given don’t match this value, suggesting a possible misprint in the choices. The main takeaway is how to apply the discounting process to each year and sum the results.