Question

Find the present values of the following cash flow streams at a 6% discount rate. Do not round intermediate calculations. Round your answers to the nearest cent. 0 1 2 3 4 5 Stream A $0 $150 $350 $350 $350 $250 Stream B $0 $250 $350 $350 $350 $150 Stream A: $ Stream B: $ What are the PVs of the streams at a 0% discount rate? Round your answers to the nearest dollar. Stream A: $ Stream B: $

Answer 1

If Discount rate is 6%

Stream A

PV = $150 + $350 + $350 + $350 + $250

(1 + 0.06) (1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4 (1 + 0.06)5

PV = $141.51 + $311.50 + $293.87 + $277.23 + $186.81

PV = $1,210.92

Stream B

PV = $250 + $350 + $350 + $350 + $150

(1 + 0.06) (1 + 0.06)2 (1 + 0.06)3 (1 + 0.06)4 (1 + 0.06)5

PV = $235.85 + $311.50 + $293.87 + $277.23 + $112.09

PV = $1,230.54

If discount rate is 0%

Stream A

PV = $150 + $350 + $350 + $350 + $250

(1 + 0) (1 + 0)2 (1 + 0)3 (1 + 0)4 (1 + 0)5

PV = $150 + $350 + $350 + $350 + $250

PV = $1,450

Stream B

PV = $250 + $350 + $350 + $350 + $150

(1 + 0) (1 + 0)2 (1 + 0)3 (1 + 0)4 (1 + 0)5

PV = $250 + $350 + $350 + $350 + $150

PV = $1,450

Step-by-step explanation:

Present value is a function of annual cashflows of each stream divided by 1 + required return raised to power number of years.

Answer 2

Stream A

Present Values 0 141.51 311.50 293.87 277.23 186.81

Stream B

Present Values 0 235.85 311.50 293.87 277.23 112.10

At 0% The streams will remain as given as they will not be discounted at all.

Step-by-step explanation:

Stream A

Cashflows 0 150 350 350 350 250

Disc Factor @ 6% 1 0.94 0.89 0.84 0.79 0.75

Present Values 0 141.51 311.50 293.87 277.23 186.81

Stream B

Cashflows 0 250 350 350 350 150

Disc Factor @ 6% 1 0.94 0.89 0.84 0.79 0.75

Present Values 0 235.85 311.50 293.87 277.23 112.10