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

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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?

#### Solution Summary

This solution helps with various business problems. Concept covered include cash flows, present value, cash flow streams, and value of investment.

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## Present and future value of irregular cash flow stream

Please see attached file for proper format.

Present and Future Value

Now consider an irregular cash flow stream (where CFs can take on any value).

a. Calculate the Present Value of the Uneven Cash Flows. Interest Rate = 10%
T=0 T=1 T=2 T=3 T=4 T=5
\$0 \$100 \$300 \$300 \$300 \$500

b. Calculate the Future Value of the Uneven Cash Flows.Interest Rate = 12%
T=0 T=1 T=2 T=3 T=4 T=5
\$0 \$100 \$300 \$300 \$300 \$500

c. Assume that an investment with the following positive cash flows has a cost of \$957.90 (outflow). Find the rate of return on this investment.

d. How many years does it take for an investment to double if the interest rate is 1.25%?

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