Question

PICTODEPOO LoL OLULU ILI Save Homework: HW #3 Ch 5 - Online 2020 Score: 0 of 20 pts < 4 of 5 (3 complete) P5-33 (book/static) HW Score: 60%, 60 of 100 pt Question Help O Present value-Mixed streams Consider the mixed streams of cash flows shown in the following table, a. Find the present value of each stream using a 5% discount rate. b. Compare the calculated present values and discuss them in light of the undiscounted cash flows totaling $50,000 in each case. Is there some discount rate at which the present values of the two streams would be equal? a. The present value of the cash flows of stream A is Sl (Round to the nearest dollar) Data Table (Click on the icon located on the top-right comer of the data table below in order to copy its contents into a spreadsheet.) Year 0 Cash flow stream A $- 50,000 $10,000 $40,000 $20,000 $30,000 $30,000 $20,000 $40,000 $10,000 $- 50,000 $50,000 Totals $50,000 Print Done

Answer 1

Period	Discounting Factor [1/(1.05^year)]	Cash Flows		PV of Cash Flows (discounting factor*cash flow)
		A	B	A	B
0	1	-50000	10000	-50000	10000
1	0.952380952	40000	20000	38095.2381	19047.61905
2	0.907029478	30000	30000	27210.8844	27210.88435
3	0.863837599	20000	40000	17276.752	34553.50394
4	0.822702475	10000	-50000	8227.02475	-41135.1237
			NPV= Sum of PVs	40809.8992	49676.8836

In case of undiscounted cash flows, result is same in both the cases.

But, in case of discounted cash flows, the are NOT same. Project B is better, because it has higher Present Value.

The reason for such difference is the difference in the time, when the cash flows are occurred. Value of the Cash Flows in the Initial years is more than that of later years. Therefore, Project B has proved better, because outflow is in last year.

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