Final answer:
The question involves calculating the present value of an income stream at a 12 percent discount rate by discounting each future cash flow to its present value using the present value formula, then summing these values to find the total present value.
Step-by-step explanation:
The question is asking to calculate the present value of an income stream that provides certain cash flows over different periods with a 12 percent discount rate. We need to discount each future cash flow back to its present value using the formula for present value, which is the future value divided by (1 + discount rate) raised to the number of years until the payment is received.
For example, for the Rs.1,000 received at the end of year one, the present value would be its future value divided by (1 + 0.12), because it is one year away. For the Rs.2,500 received at the end of year two, the calculation is similar but raised to the power of 2, as it is two years away. For the Rs.5,000 received annually from years 3 to 10, each cash flow needs to be discounted separately according to the respective year and then summed up to find the total present value.
Once each cash flow's present value is calculated, we add them up to obtain the total present value of the entire income stream.