Using simple interest, it is found that the present value of the cash inflow is of 947.
Simple interest is used when there is a single compounding per time period.
The amount of money after t years in is modeled by:
A(t) = A(0)(1 + rt)
In which:
In this problem, the parameters are given as follows:
t = 4, r = 0.08, A(4) = 1250.
Then we solve for A(0) to find the present value.
A(t) = A(0)(1 + rt)
1250 = A(0)(1 + 0.08 x 4)
A(0) = 1250/1.32
A(0) = 947.
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