Question

Find the present values of the following cash flow streams. The appropriate interest rate is 12%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF0 = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Ch04 Tool Kit.xlsx.) Do not round intermediate calculations. Round your answers to the nearest cent.

Year Cash Stream A Cash Stream B 1 $100 $250 2 400 400 3 400 400 4 400 400 5 250 100 Stream A: $ Stream B: $ What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest dollar. Stream A $ Stream B $

Answer 1

Present values of the cash streams, at the interest rate of 12%, using NPV function of Excel are as follows:

Cash stream A: $1,088.94

Cash stream B: $1,137.75

09 D А 1 Interest rate 2 Year f =NPV(C1,C3:08) в с 12% 12% Cash Sream A Cash Sream B co vou Awn 100 400 400 400 250 $1,088.94 250 400 400 400 100 $1,137.75 9 NPV 10

At the interest rate of 0%, value of the cash stream is the sum of the cash streams of all years, which is $1,550 in both the cases.