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    Relationship between future value and present value

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    P4-31 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.)

    Future value interest factor
    Year (t) Cash flow at 5% (FVIF5%,n)
    1 $ 800 1.050
    2 900 1.102
    3 1,000 1.158
    4 1,500 1.216
    5 2,000 1.276

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    Solution Preview

    P4-31 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.
    Present value interest factor
    Year (t) Cash flow at 5% (PVIF5%,n)
    1 ...

    Solution Summary

    This solution is comprised of a detailed explanation to determine the present value of the mixed stream of cash flows using a 5% discount rate, 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, and what effect, if any, would a 7% rather than a 5% opportunity cost have on
    your analysis.

    $2.49

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