Question

Problem 4-14 Uneven Cash Flow Stream a. Find the present values of the following cash flow streams. The appropriate interest rate is 6%. Round your answers to the nearest cent. (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 CFO = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Chapter 4 Tool Kit.) Year Cash Stream A Cash Stream B $100 $300 400 400 400 400 400 400 300 100 Stream A $ Stream B $ b. What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest cent. Stream A $ Stream B $

Answer 1

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Cash Stream A	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Net cash flows	100.00	400.00	400.00	400.00	300.00	1,600.00	A
PV factor at 6%	0.94	0.89	0.84	0.79	0.75		B
PV of cash flows	94.34	356.00	335.85	316.84	224.18	1,327.20	C=A*B
NPV						$ 1,327.20
Cash Stream B	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Net cash flows	300.00	400.00	400.00	400.00	100.00	1,600.00	D
PV factor at 6%	0.94	0.89	0.84	0.79	0.75		E
PV of cash flows	283.02	356.00	335.85	316.84	74.73	1,366.43	F=D*E
NPV						$ 1,366.43
Cash Stream A	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Net cash flows	100.00	400.00	400.00	400.00	300.00	1,600.00	A
PV factor at 0%	1.00	1.00	1.00	1.00	1.00		G
PV of cash flows	100.00	400.00	400.00	400.00	300.00	1,600.00	H=A*G
NPV						$ 1,600.00
Cash Stream B	Year 1	Year 2	Year 3	Year 4	Year 5	Total
Net cash flows	300.00	400.00	400.00	400.00	100.00	1,600.00	D
PV factor at 6%	1.00	1.00	1.00	1.00	1.00		G
PV of cash flows	300.00	400.00	400.00	400.00	100.00	1,600.00	I=D*G
NPV						$ 1,600.00