Question

Present Value and Multiple Cash Flows [LO1] Investment X offers to pay you $4,200 per year for eight years, whereas Investment Y offers to pay you $6,100 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent?

Please do not use excel. Please type it.

Answer 1

Which of these cash flow streams has the higher present           
value if the discount rate is 5 percent? : Ans Investment X          
          
   Investment X      
Year   Cash flow   Discount Rate 5%   Discounted Cash Flow
1 $4,200 0.9524 4000.00
2 $4,200    0.9070 3809.52
3 $4,200 0.8638 3628.12
4 $4,200    0.8227 3455.35
5 $4,200 0.7835 3290.81
6 $4,200 0.7462    3134.10
7 $4,200 0.7107 2984.86
8 $4,200 0.6768 2842.73
Discounted Cash Flow       27145.49
          
   Investment Y      
Year   Cash flow   Discount Rate 5%   Discounted Cash Flow
1 $6,100 0.9524 5809.52
2    $6,100 0.9070 5532.88
3 $6,100 0.8638 5269.41
4 $6,100 0.8227 5018.49
5 $6,100 0.7835 4779.51
Discounted Cash Flow       26409.81
          
          
          
Which of these cash flow streams has the higher present           
value if the discount rate is 15 percent? Ans Investment Y          
          
   Investment X       (IN $)
Year   Cashflow   Discount Rate 15%   Discounted CashFlow
1 $4,200 0.8696 3652.17
2 $4,200 0.7561 3175.80
3 $4,200 0.6575 2761.57
4 $4,200 0.5718 2401.36
5 $4,200 0.4972 2088.14
6 $4,200 0.4323 1815.78
7 $4,200 0.3759 1578.94
8 $4,200 0.3269 1372.99
Discounted Cash Flow       18846.75
          
   Investment Y       (IN $)
Year   Cashflow   Discount Rate 15%   Discounted CashFlow
1 $6,100 0.8696 5304.35
2 $6,100 0.7561 4612.48
3 $6,100 0.6575 4010.85
4 $6,100 0.5718 3487.69
5 $6,100 0.4972 3032.78
Discounted Cash Flow       20448.15