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Sophie [7]
2 years ago
5

Find the present values of the following cash flow streams at a 6% discount rate. Do not round intermediate calculations. Round

your answers to the nearest cent. 0 1 2 3 4 5 Stream A $0 $150 $350 $350 $350 $250 Stream B $0 $250 $350 $350 $350 $150 Stream A: $ Stream B: $ What are the PVs of the streams at a 0% discount rate? Round your answers to the nearest dollar. Stream A: $ Stream B: $
Business
2 answers:
Mademuasel [1]2 years ago
6 0

Answer:

Stream A

Present Values 0      141.51 311.50 293.87   277.23 186.81

Stream B      

Present Values 0 235.85  311.50 293.87  277.23    112.10

At 0% The streams will remain as given as they will not be discounted at all.

Explanation:

Stream A      

Cashflows  0         150  350  350        350       250

Disc Factor @ 6% 1 0.94   0.89 0.84 0.79 0.75

Present Values 0      141.51 311.50 293.87   277.23 186.81

Stream B      

Cashflows          0 250  350 350        350        150

Disc Factor @ 6% 1 0.94   0.89 0.84 0.79 0.75

Present Values 0 235.85  311.50 293.87  277.23    112.10

tester [92]2 years ago
4 0

Answer:

If Discount rate is 6%

Stream A

PV = <u>$150</u>   +     <u>$350</u>    +      <u>$350</u>     +     <u>$350</u>      +   <u>$250 </u>                                                                                                                                                                                                                                                                                                                                                                                                            

       (1 + 0.06)    (1 + 0.06)2    (1 + 0.06)3    (1 + 0.06)4   (1 + 0.06)5      

PV  =  $141.51   + $311.50   +  $293.87     +    $277.23   +  $186.81    

PV = $1,210.92

Stream B

PV = <u>$250   </u>+     <u>$350</u>    +      <u>$350</u>     +   <u>  $350</u>      +  <u> $150 </u>                                                                                                                                                                                                                                                                                                                                                                                                            

       (1 + 0.06)    (1 + 0.06)2    (1 + 0.06)3    (1 + 0.06)4   (1 + 0.06)5

PV =  $235.85   +  $311.50    +  $293.87  +  $277.23   +   $112.09                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

PV =  $1,230.54

If discount rate is 0%          

Stream A

PV = <u>$150</u>   +     <u>$350</u>    +     <u> $350</u>     +     <u>$350</u>      +  <u> $250 </u>                                                                                                                                                                                                                                                                                                                                                                                                            

       (1 + 0)         (1 + 0)2          (1 + 0)3       (1 + 0)4         (1 + 0)5    

PV = $150  +    $350      +       $350     +    $350     +   $250

PV = $1,450              

Stream B

PV = <u>$250</u>   +     <u>$350</u>    +     <u> $350</u>     +    <u> $350</u>      +   <u>$150 </u>                                                                                                                                                                                                                                                                                                                                                                                                            

       (1 + 0)          (1 + 0)2         (1 + 0)3          (1 + 0)4       (1 + 0)5        

PV = $250  +     $350     +     $350        +    $350     +   $150

PV = $1,450                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

                                                                                                                                                                                                                                                 Explanation:

Present value is a function of annual cashflows of each stream divided by 1 + required return raised to power number of years.

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