Question

Ex3 (Business, Administration and Management) Consider the two streams of cash flows S1-(1000,0), (-200,1), (-1000,3)), S1 1000,0), (-,2), (-1120,3)) where a is a certain positive capital, and assume the exponential regime (a) (1.5 pt) Write a formula for the total present value of both, as a function of the prevailing interest rate r, and ofx (b) (1.5 pt) Assume r = 4%, and x-160. Say whether S1 is preferable to S2 (c) (2 pt) Assume r 4%, and choose x so that the choice of S1 or S2 is indifferent (d*) (Optional-1 pt) Assume x = 160 and say for which values ofr > 0 the stream S1 is preferable to

Answer 1