Investment X offers to pay you $4,700 per year for eight years, whereas Investment Y offers to pay you $6,700 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?
Complete the following analysis. Do not hard code values in your calculations. All answers should be positive.
Value of X at 5% _______
Value of Y at 5% _______
Value of X at 15% _______
Value of Y at 15% _______
Value of Xat 5% | $30,377.10 |
Value of Y at 5% | $29,007.49 |
Value of X at 15% | $21,090.41 |
Value of Y at 15% | $22,459.44 |
Workings
NPV is given by::
We will be using excel formula of NPV (discount rate, cashflows)
SUMMARY
Investment X offers to pay you $4,700 per year for eight years, whereas Investment Y offers to pay you $6,800 per year for five years. (Use a Financial calculator to arrive at the answers. Round "PV Factor" to 3 decimal places. Round the final answers to 2 decimal places.) Calculate the present value for Investment X and Y if the discount rate is 5%. Calculate the present value for Investment X and Y if the discount rate is 15%.
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