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	$350	$350	$350	$250
   Stream B	$0	$250	$350	$350	$350	$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

a. The present value is computed as shown below:

= Future value / (1 + r)ⁿ

The present value of Stream A is computed as follows:

= $ 150 / 1.06 + $ 350 / 1.06² + $ 350 / 1.06³ + $ 350 / 1.06⁴ + $ 250 / 1.06⁵

= $ 1,210.92 Approximately

The present value of Stream B is computed as follows:

= $ 250 / 1.06 + $ 350 / 1.06² + $ 350 / 1.06³ + $ 350 / 1.06⁴ + $ 150 / 1.06⁵

= $ 1,230.54 Approximately

b. The present value of Stream A is computed as follows:

= $ 150 + $ 350 + $ 350 + $ 350 + $ 250

= $ 1,450

The present value of Stream B is computed as follows:

= $ 250 + $ 350 + $ 350 + $ 350 + $ 150

= $ 1,450

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