Question

1. Find the present values of the following cash flow streams at a 6% discount rate. Do not round intermediate calculations. Round your answers to the nearest cent.

   0

   1

   2

   3

   4

   5

   Stream A	$0	$150	$400	$400	$400	$300
   Stream B	$0	$300	$400	$400	$400	$150

   Stream A: $  

   Stream B: $  

2. What are the PVs of the streams at a 0% discount rate? Round your answers to the nearest dollar.

   Stream A: $  

   Stream B: $  

Answer 1

We know that,

Present Value = Amount/(1+rate)^1 + Amount/(1+rate)^2 +Amount/(1+rate)^3 +Amount/(1+rate)^4 +.........

a.

Discount rate = 6%

PV of stream A = 150/(1+0.06)^1 + 400/(1+0.06)^2 + 400/(1+0.06)^3 + 400/(1+0.06)^4 + 300/(1+0.06)^5 = 1374.37 Answer

PV of stream B = 300/(1+0.06)^1 + 400/(1+0.06)^2 + 400/(1+0.06)^3 + 400/(1+0.06)^4 + 150/(1+0.06)^5 = 1403.79 Answer

b.

Discount rate = 6%

PV of stream A = 150/(1+0)^1 + 400/(1+0)^2 + 400/(1+0)^3 + 400/(1+0)^4 + 300/(1+0)^5 = 1650 Answer

PV of stream B = 300/(1+0)^1 + 400/(1+0)^2 + 400/(1+0)^3 + 400/(1+0)^4 + 150/(1+0)^5 = 1650 Answer