Answer:
Explanation:
To calculate the present value (PV) and future value (FV) of the cash flow stream, we can use the following steps:
Calculate the present value of each cash flow using the formula:
PV = CF / (1 + r)^n
where CF is the cash flow, r is the annual interest rate, and n is the number of years until the cash flow is received.
For the first three cash flows of $150 at the end of each of the next 3 years, assuming a starting point of Year 0, we have:
PV1 = $150 / (1 + 0.11)^1 = $134.59 (Year 1)
PV2 = $150 / (1 + 0.11)^2 = $120.75 (Year 2)
PV3 = $150 / (1 + 0.11)^3 = $107.99 (Year 3)
For the cash flow of $250 at the end of Year 4:
PV4 = $250 / (1 + 0.11)^4 = $165.14
For the cash flow of $300 at the end of Year 5:
PV5 = $300 / (1 + 0.11)^5 = $179.34
For the cash flow of $500 at the end of Year 6:
PV6 = $500 / (1 + 0.11)^6 = $277.12
Add up the present values of each cash flow to find the present value of the entire stream:
PV = PV1 + PV2 + PV3 + PV4 + PV5 + PV6
PV = $134.59 + $120.75 + $107.99 + $165.14 + $179.34 + $277.12
PV = $985.93
Therefore, the present value of the cash flow stream is $985.93.
To find the future value of the cash flow stream, we can simply add up the cash flows and then apply the future value formula:
FV = CF x [(1 + r)^n - 1] / r
where CF is the sum of the cash flows, r is the annual interest rate, and n is the number of years from the present until the future value is calculated.
CF = $150 x 3 + $250 + $300 + $500 = $1,100
n = 6 (assuming a starting point of Year 0)
FV = $1,100 x [(1 + 0.11)^6 - 1] / 0.11
FV = $2,525.72
Therefore, the future value of the cash flow stream is $2,525.72.