Answer:
a.
PV - Stream A = $1215.638009 rounded off to $1215.64
PV - Stream B = $1269.13797 rounded off to $1269.14
b.
PV - Stream A = $1600
PV - Stream B = $1600
Step-by-step explanation:
a.
The present value of a series or stream of cash flows can be calculated using the following formula,
PV of Cash flow = CF1 / (1+i) + CF2 / (1+i)^2 + ... + CFn / (1+i)^n
Where,
- CF1, CF2, ... represents the cash flow in year 1, year 2 and so on
- i is the relevant discount rate or interest rate
PV - Stream A = 100 / (1+0.09) + 400 / (1+0.09)^2 + 400 / (1+0.09)^3 +
400 / (1+0.09)^4 + 300 / (1+0.09)^5
PV - Stream A = $1215.638009 rounded off to $1215.64
PV - Stream B = 300 / (1+0.09) + 400 / (1+0.09)^2 + 400 / (1+0.09)^3 +
400 / (1+0.09)^4 + 100 / (1+0.09)^5
PV - Stream B = $1269.13797 rounded off to $1269.14
b.
When the interest rate is zero, the present value of cash flows remain the same as their absolute values. Thus, the PV of cash flow streams A and B at 0% interest rate is,
PV - Stream A = 100 + 400 + 400 + 400 + 300
PV - Stream A = $1600
PV - Stream B = 300 + 400 + 400 + 400 + 100
PV - Stream B = $1600