Question

Find the present value of the following stream of cash flows assuming that the firms opportuiny costs is 9 percent. 1-5 years 10,000 annual 6-10 years 16,000 annual

I know the answer is 79,348. I need step by step because I can not find the formula anywhere

Answer 1

∑( Cash flow × PVF) = 79,347

Step-by-step explanation:

Given:

Opportunity cost = 9%

Cash flow for 1-5 years = 10,000

Cash flow for 6-10 years = 16,000

Now,

Present value factor (PVF) =
`\frac{\textup{1}}{\textup{(1 + 0.09)^n}}`

here, n is the year

For year 1 to 5

Year Cash flow PVF Cash flow × PVF

1 10000 0.9174 9174

2 10000 0.8417 8417

3 10000 0.7722 7722

4 10000 0.7084 7084

5 10000 0.6499 6499

for years 6 to 10

Year Cash flow PVF Cash flow × PVF

6 16000 0.5963 9540.8

7 16000 0.547 8752

8 16000 0.5019 8030.4

9 16000 0.4604 7366.4

10 16000 0.4224 6758.4

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∑( Cash flow × PVF) = 79,347

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taking the PVF to 5 decimal places will make 79,347 ≈ 79,348