Question

a. Find the present values of the following cash flow streams at a 5% discount rate. Round your answers to the nearest cent. 0 1 2 3 4 5 Stream A Stream B Stream A $ $0 $0 $100 $300 $350 $350 $350 $350 $350 $350 $300 $100 Stream B $ b. What are the PVs of the streams at a 0% discount rate? Stream A $ Stream B $

Answer 1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

At 6%:

A:

Present value=100/1.06+350/1.06^2+350/1.06^3+350/1.06^4+300/1.06^5

=$1201.12(Approx)

B:

Present value=300/1.06+350/1.06^2+350/1.06^3+350/1.06^4+100/1.06^5

=$1240.34(Approx)

At 0%:

A:

Present value=100+350+350+350+300

=$1450

B:

Present value=300+350+350+350+100

=$1450