Question

Find the present values of the following cash flow streams at a 6% discount rate. Round your answers to the nearest cent. 0 1 2 3 4 5 Stream A $0 $100 $450 $450 $450 $250 Stream B $0 $250 $450 $450 $450 $100 Stream A $ Stream B $ What are the PVs of the streams at a 0% discount rate? Stream A $ Stream B $

Answer 1

HI,

Here Stream A

$0 $100 $450 $450 $450 $250

Present Value = Y0 + Y1/(1+r) +Y2/(1+r)^2 + Y3/(1+r)^3 +Y4/(1+r)^4 + Y5/(1+r)^5

If discount rate is 6%

Present Value of stream A = 0 +100/(1+6%) +450/(1+6%)^2 +450/(1+6%)^3 + 450/(1+6%)^4 +250/(1+6%)^5

Present Value of stream A= $1,415.92

Present Value of Stream B = 0 +250/(1+6%) + +450/(1+6%)^2 +450/(1+6%)^3 + 450/(1+6%)^4 +100/(1+6%)^5

Present Value of Stream B = $1,445.34

If Discount rate =0%

then Present Value will be equal to sum of all cash flow

So Present Value of Stream A = 100+450+450+450+250 =$1,700

So Present Value of Stream B = 250+450+450+450+100 =$1,700

Thanks