Explore BrainMass
Share

# Calculating present value of the given mixed stream

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

See the attached file.

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.

#### Solution Preview

Please refer attached file for better clarity of tables.

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.

View Full Posting Details