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Unformatted text preview: Discount Factor – PV of a $1 future payment DF = 1 / (1+r)^t Multiple Cash flow Choice to pay $15,500.00 (now) Or 3 Payments of: $8,000 (now) $4,000 (end of year 1) $4,000 (end of year 2) Cost of year $ (interest) – 8% Never compare cash flows occurring at different times!!!!! Discount them to the present!!!!! PV = $8000+3703.70+3429.36 PV = $15,133.06 Therefore the second choice is better than the first choice...
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