Question

1. Find the present values of the following cash flow streams at a 9% discount rate. Do not round intermediate calculations. 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: $  

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

For a given discount rate of r for n periods, the present value of a cashstream can be calculated as:

C+C1/(1+r)+C2/(1+r)^2+C3/(1+r)^3+....Cn/(1+r)^n; where C is cashflow in Year 0 and C1 to Cn are cashflows from Year 1 to Year n, and r is discount rate.

a).

Present Value of Stream A= 0+100/(1+9%)+450/(1+9%)^2+450/(1+9%)^3+450/(1+9%)^4+250/(1+9%)^5= $1299.26

Present Value of Stream B= 0+250/(1+9%)+450/(1+9%)^2+450/(1+9%)^3+450/(1+9%)^4+100/(1+9%)^5= $1339.38

b).

Present Value of Stream A= 0+100/(1+0%)+450/(1+0%)^2+450/(1+0%)^3+450/(1+0%)^4+250/(1+0%)^5= $1700

Present Value of Stream B= 0+250/(1+0%)+450/(1+0%)^2+450/(1+0%)^3+450/(1+0%)^4+100/(1+0%)^5= $1700