Final answer:
The present value of the stream of 5 cash receipts is $11,306.38.
Step-by-step explanation:
The present value of a stream of 5 end-of-year annual cash receipts of ($3,200) given a discount rate of 13% can be calculated using the formula:
Present Value = Cash Flow / (1 + Discount Rate)n
Where:
- Cash Flow is the amount of cash received each year ($3,200)
- Discount Rate is the rate at which future cash flows are discounted (13%)
- n is the number of years (5)
- Let's calculate the present value:
Present Value of Year 1 cash flow = $3,200 / (1 + 0.13)1 = $2,831.86
Present Value of Year 2 cash flow = $3,200 / (1 + 0.13)2 = $2,507.39
Present Value of Year 3 cash flow = $3,200 / (1 + 0.13)3 = $2,224.49
Present Value of Year 4 cash flow = $3,200 / (1 + 0.13)4 = $1,978.33
Present Value of Year 5 cash flow = $3,200 / (1 + 0.13)5 = $1,764.31
The total present value of the stream of cash receipts is the sum of the individual present values:
Total Present Value = $2,831.86 + $2,507.39 + $2,224.49 + $1,978.33 + $1,764.31 = $11,306.38