Question

Calculating Value and Multiple Cash Flows: Investment X offers to pay you $4850 per year for nine years, whereas Investment Y offers to pay you $6775 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5%? If the discount rate is 21%?

Calculating Annuity Present Value: An investment offers $5500 per year for 15 years, with the first payment occurring one year from now. If the required return is 7.5%, what is the value of the investment? What would the value be if the payments occurred for 40 years? 75 years? Forever?

Answer 1

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Statementshowing Computations
Paticulars	Investment X	Investment Y
a) PVF at 5%
Cash flows per year	4,850.00	6,775.00
PVF at 5% for 9 and 5 Years resp	7.1078	4.3295
PV of cash flows	34,472.94	29,332.20
b) PVF at 21%
Cash flows per year	4,850.00	6,775.00
PVF at 21% for 9 and 5 Years resp	3.9054	2.9260
PV of cash flows	18,941.36	19,823.54
Time	PVF at 5%	PVF at 21%
1.00	0.9524	0.8264
2.00	0.9070	0.6830
3.00	0.8638	0.5645
4.00	0.8227	0.4665
5.00	0.7835	0.3855
6.00	0.7462	0.3186
7.00	0.7107	0.2633
8.00	0.6768	0.2176
9.00	0.6446	0.1799
PVF for 5 Years	4.3295	2.9260
PVF for 9 Years	7.1078	3.9054