Present value of the cash flow stream
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P3-16. Use the following table of cash flows to answer parts a - c. Assume an 8 percent discount rate.
End of Year Cash Flow
1 $10,000
2 10,000
3 10,000
4 12,000
5 12,000
6 12,000
7 12,000
8 15,000
9 15,000
10 15,000
a. Solve for the present value of the cash flow stream by summing the present value of each
individual cash flow.
b. Now, solve for the present value by summing the present value of the three separate
annuities (one current and two deferred).
c. Which method is better for a long series of cash flows with embedded annuities?
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