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To determine the present value (PV) of the given cash flows, we apply the formula for discounting each cash flow back to the present value:

\[
PV = \frac{C}{(1 + r)^t}
\]

Where:
- \(C\) is the cash flow in year \(t\),
- \(r\) is the discount rate (14% or 0.14),
- \(t\) is the year of the cash flow.

The cash flows are:
- Year 1: Sh. 1,000,000
- Year 2: Sh. -500,000
- Year 3: Sh. 2,000,000
- Year 4: Sh. -600,000

We will calculate the PV for each year, then sum them up.

1. **Year 1 (t = 1)**:  
   \[
   PV_1 = \frac{1,000,000}{(1 + 0.14)^1} = \frac{1,000,000}{1.14} \approx 877,193
   \]

2. **Year 2 (t = 2)**:  
   \[
   PV_2 = \frac{-500,000}{(1 + 0.14)^2} = \frac{-500,000}{1.2996} \approx -384,876
   \]

3. **Year 3 (t = 3)**:  
   \[
   PV_3 = \frac{2,000,000}{(1 + 0.14)^3} = \frac{2,000,000}{1.481544} \approx 1,350,383
   \]

4. **Year 4 (t = 4)**:  
   \[
   PV_4 = \frac{-600,000}{(1 + 0.14)^4} = \frac{-600,000}{1.688969} \approx -355,298
   \]

Now, summing up the present values:

\[
PV_{\text{total}} = 877,193 - 384,876 + 1,350,383 - 355,298 \approx 1,487,402
\]

The closest answer is **B. Sh. 1,487,150**.

Would you like further details or clarification on any part of this? Here are some related questions:

1. How does the discount rate affect the present value of future cash flows?
2. What is the significance of net present value (NPV) in investment decisions?
3. How would the result change if the discount rate was different?
4. Can we have a scenario where all cash flows are negative?
5. How would the analysis differ if the time intervals were not annual?

**Tip:** Always make sure to apply the correct discount rate and time period for each cash flow when calculating the present value.

Determine the present value of the following cash flows, given a discount rate of 14%. Cash flows: Year 1: Sh. 1,000,000; Year 2: Sh. -500,000; Year 3: Sh. 2,000,000; Year 4: Sh. -600,000. Options: A. Sh. 1,214,850, B. Sh. 1,487,150, C. Sh. 1,601,850, D. Sh. 1,710,150.

Learn how to determine the present value of cash flows with a discount rate of 14%. This problem covers key finance concepts such as present value and discounting, providing a step-by-step solution to calculating the present value of future cash flows. Suitable for university-level finance students.

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