Question

# Problem 5-50 (similar to) ​(Present value of an uneven stream of payments​) You are given three...

Problem 5-50 (similar to) ​(Present value of an uneven stream of payments​) You are given three investment alternatives to analyze. The cash flows from these three investments are shown in the Below table . Assuming a discount rate of 25 ​percent, find the present value of each investment.

a. What is the present value of investment A at 25 percent annual discount​ rate?

 INVESTMENT END OF YEAR A B C 1 \$12,000 \$12,000 2 12000 3 12000 4 12000 5 12000 \$12,000 6 12000 60000 7 12000 8 12000 9 12000 10 12000 12000

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

a.For A:

Present value=12000/1.25+12000/1.25^2+12000/1.25^3+12000/1.25^4+12000/1.25^5

=12000/[1/1.25+1/1.25^2+...........+1/1.25^5]

=\$12000*2.68928

=\$32271.36

b.B:

Present value=12000/1.25^5+12000/1.25^6+.......+12000/1.25^10

=12000[1/1.25^5+1/1.25^6+...........+1/1.25^10]

=\$12000*1.20890327

which is equal to

=\$14506.84(Approx)

c.

C:

Present value=12000/1.25+60,000/1.25^6+12000/1.25^10

which is equal to

=\$26617.13(Approx).