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Calculating present value of the given mixed stream

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Relationship between future value and present value-Mixed stream

Using only the information in the accompanying table, answer the questions that follow.
a. Determine the present value of the mixed stream of cash flows using a 5% discount rate.
b. How much would you be willing to pay for an opportunity to buy this stream, assuming that you can at best earn 5% on your investments?
c. What effect, if any, would a 7% rather than a 5% opportunity cost have on your analysis? (Explain verbally).

Rate 5%
Year Cash flow Factor
1 800 1.05
2 900 1.102
3 1000 1.158
4 1400 1.216
5 2000 1.276.

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a. Determine the present value of the mixed stream of cash flows using a 5% discount rate.

Year Cashflow Factor PV of cash flow
Cf PVF =Cf/PVF
1 800 1.05 ...

Solution Summary

Solution describes the steps to calculate present value of given mixed cash stream.

$2.19
Similar Posting

Present Value - Mixed streams and Comparison

Consider the mixed streams of cash flows shown in the following table.

YEAR A B
1 $50,000 $10,000
2 $40,000 $20,000
3 $30,000 $30,000
4 $20,000 $40,000
5 $10,000 $50,000

Totals $150,000 $150,000

(a) Find the present value of each stream using a 15% discount rate
(b) Compare the calculated present values and discuss them in light of the fact that the undiscounted cash flows total $150,000 in each case.

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