Question

Find the present value of the following stream of cash flows assuming that the firms opportuiny costs is 9 percent. 1-5 years 10,000 annual 6-10 years 16,000 annual
I know the answer is 79,348. I need step by step because I can not find the formula anywhere

Answer 1

Answer:

   ∑( Cash flow × PVF) = 79,347

Explanation:

Given:

Opportunity cost = 9%

Cash flow for 1-5 years = 10,000

Cash flow for 6-10 years = 16,000

Now,

Present value factor (PVF) = $\frac{\textup{1}}{\textup{(1 + 0.09)^n}}$

here, n is the year

For year 1 to  5

Year             Cash flow             PVF             Cash flow × PVF

1                     10000             0.9174             9174

2                     10000             0.8417             8417

3                      10000             0.7722             7722

4                      10000             0.7084             7084

5                      10000             0.6499             6499

for years 6 to 10

Year             Cash flow             PVF             Cash flow × PVF

6                      16000              0.5963             9540.8

7                      16000              0.547             8752

8                      16000              0.5019             8030.4

9                      16000             0.4604             7366.4

10                      16000             0.4224             6758.4

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                                          ∑( Cash flow × PVF) = 79,347

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taking the PVF to 5 decimal places will make 79,347 ≈ 79,348