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Calculating present value of the given mixed stream

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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.

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Solution Summary

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

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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 provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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