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# Present Value of a stream of cash flows

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Find the present value of the following stream of cash flows assuming that the firm's cost is 14% and that these amounts are received at the end of each year.

Year Amount
1 - 5 \$20,000/year
6 - 10 \$35,000/year

#### Solution Preview

Note: the abbreviations have the following meanings

PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity

They can be read from tables or calculated using the following equations
PVIF( n, r%)= =1/(1+r%)^n
PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%

Find the present value of the following stream of cash flows assuming that the firm's cost is 14% and that these amounts are received at the end of each ...

#### Solution Summary

Calculates Present Value of a stream of cash flows.

\$2.19

## Cash flows, present value, cash flow streams, investments

1) Seaborn Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value 18 percent? At 24 percent?

Year Cash Flow
1 \$950
2 \$1040
3 \$1130
4 \$1075

2.) Investment X offers to pay you \$6,000 per year for nine years, whereas Investment Y offers to pay you \$8,000 per year for six years. Which of these cash flows streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent?

3.) An investment offers \$5,300 per year for 15 years, with the first payment occurring one year from now. If the required return is 7 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75? Forever?

4.) If you put up \$34,000 today in exchange for a 7.65 percent, 15-year annuity, what will the annual cash flow be?

5.) Your company will generate \$73,000 in annual revenue each year for the next eight years from a new information database. If the appropriate interest rate is 8.5 percent, what is the percent value of the savings?

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