Question

Please help with the following question:

Present valueMixed 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 S . (Round to the nearest dollar.) The present value of the cash flows of stream B is $ (Round to the nearest dollar.) b. Compare the calculated present values and discuss them in light of the undiscounted cash flows totaling $50,000 in each case. (Select the best answer below.) O A. Cash flow stream A, with a present value of $40,810, is higher than cash flow stream B's present value of $49,677 because the negative cash inflow occurs in A in the later years when their present value is greater, while the negative cash flows are received in the earlier years. O B. Cash flow stream A, with a present value of $49,677, is higher than cash flow stream B's present value of $40,810 because the positive cash inflows occur in A in the early years when their present value is greater, while the negative cash flows is received further in the future. Oc Cash flow strearri A, with a present value of $40,810, is lower than cash flow strearri B's present value of $49,677 because the negative cash inflow occurs in A in the early years, while the positive cash flows are received further in the future. OD. Cash flow stream A, with a present value of $40,810, is higher than cash flow stream B's present value of $49.677 because the positive cash inflows occur in A in the early years when their present value is greater, while the negative cash flow is received further in the future. 1: 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 Cash flow stream A $-50,000 $10,000 S40,000 $20,000 530,000 $30,000 S20,000 $40,000 $10,000 S-50,000 $50,000 $50,000 Totals

Answer 1

a.
Calculation of present value of stream A
Year	Cash flow	Discount factor @ 5%		Present value
0	-$50,000	1.00000	1/(1.05^0)	-$50,000
1	$40,000	0.95238	1/(1.05^1)	$38,095
2	$30,000	0.90703	1/(1.05^2)	$27,211
3	$20,000	0.86384	1/(1.05^3)	$17,277
4	$10,000	0.82270	1/(1.05^4)	$8,227
Net present value				$40,810
Calculation of present value of stream B
Year	Cash flow	Discount factor @ 5%		Present value
0	$10,000	1.00000	1/(1.05^0)	$10,000
1	$20,000	0.95238	1/(1.05^1)	$19,048
2	$30,000	0.90703	1/(1.05^2)	$27,211
3	$40,000	0.86384	1/(1.05^3)	$34,554
4	-$50,000	0.82270	1/(1.05^4)	-$41,135
Net present value				$49,677
b.
The correct statement is (c )
The cash flow stream for A is lower than cash flow stream for B as negative cash flow for A occurs earlier and then positive cash flow occurs