Question

each set contains the same cash flows ($10,$22,$34,$46,$58) so why is the present value different

part(a) is from 10 to 58

part(b) is from 58 to 10

the present value of the following set of cash flows, discounted at 9.8% per year? Year O A. The present value in part (a) is lower because the larger cash flows occur sooner. O B. The present value in part (a) is higher because the larger cash flows occur sooner. O C. The present value in part (b) is lower because the larger cash flows occur sooner. OD. The present value in part(b) is higher because the larger cash flows occur sooner. Click to select your answer(s).

Answer 1

Attached are the calculations and formulas used :-

A B C D G H Discount Rate 9.80% Part A Part B 58 Years Cash Flows PV Factor PV of Cash Flows 10 0.911 9.11 22 0.829 18.25 34 0.755 25.68 46 0.688 31.65 5 58 0.627 36.34 SUM 121.03 Years Cash Flows PV Factor PV of Cash Flows 0.911 52.82 46 0.829 38.16 34 0.755 25.68 22 0.688 15.14 10 0.627 6.27 SUM 138.07 13

B C D E Discount Rate 0.098 Part A Part B m Years Cash Flows PV Factor PV of Cash Flows =1/(1+$C$2)^B7 =C7*D7 =1/(1+$C$2)^B8 =C8*D8 =1/(1+$C$2)^B9 =C9*D9 =1/(1+$C$2)^B10 =C10*D10 =1/(1+$C$2)^B11 =C11*011 SUM =SUM(E7:E11) Years Cash Flows PV Factor PV of Cash Flows =1/(1+$C$2)^G7 =H7*17 =1/(1+$C$2)^G8 =H8*18 =1/(1+$C$2)^G9 =H9*19 =1/(1+$C$2)^G10 =H10*110 =1/(1+$C$2)^G11 =H11*111 SUM =SUM(17:J11) in 12

Part B has higher cash flows, as larger cash flows occur sooner

Correct Answer is Option D - Present Value in Part B is higher, because larger cash flows occur sooner