Question

The following information is provided relating to a stream
of cash flows:

Year     Amount of cash flow
1-4      $25,000 per year (payments at beginning of year)
5-10     $12,000 per year (payments at end of year)

Assume an interest rate of 10% compounded annually.

Calculate the present value of the stream of cash flows above.

To answer this question use the present value table factors
given below. No credit will be awarded for this question
using a means other than the table factors given below to
answer this question.

Factors from the present value of a lump sum table for:

i = 10%:
n = 4    n = 5    n = 6    n = 7    n = 8    n = 9    n = 10 
0.680    0.620    0.570    0.510    0.470    0.420    0.390


Factors from the present value of an annuity table for:

i = 10%:
n = 4    n = 5    n = 6    n = 7    n = 8    n = 9    n = 10 
3.170    3.790    4.350    4.870    5.340    5.760    6.150

Answer 1

Correct Answer:

Year	PV of cash flow stream
01-04	$        87,175
05- 10	$        52,200
Total	$    1,39,375

Working:

	A	B	C =A*B
Year	Cash flow	PV of annuity due	Amount
1-4	$        25,000	$     3.487	$        87,175
	Cash flow	PV of ordinary Annuity
5-10	$        12,000	$     4.350	$        52,200

End of Answer.

Thanks