Question

What is the present value of the following cash flow stream at a rate of 6.25

Answer 1

The present value of the cash flow stream is approximately $55.7 million.

Step-by-step explanation:

To calculate the present value of the cash flow stream, we need to discount each payment to its present value and then sum them up. Let's consider the three payments:

1. $15 million received in the present has a present value of $15 million (since it's already in the present).
2. $20 million received in one year has a present value of $20 million divided by (1 + 0.0625) to the power of 1, which equals approximately $18.8 million.
3. $25 million received in two years has a present value of $25 million divided by (1 + 0.0625) to the power of 2, which equals approximately $21.9 million.

Finally, we add these present values together: $15 million + $18.8 million + $21.9 million = approximately $55.7 million. So, the present value of the cash flow stream is approximately $55.7 million.