Relationship between future value and present value-Mixed stream Using the infor
ID: 2616654 • Letter: R
Question
Relationship between future value and present value-Mixed stream Using the information in the accompanying table, EEB answer the questions that follow. Determine the present value of the mixed stream of cash flows using a 6% discount rate. b. How much would you be willing to pay for an opportunity to buy this stream, assuming that you can at best earn 6% on your investments? C. What effect, if any, would a 8% rather than a 6% opportunity cost have on your analysis? a. The present value of the mixed stream of cashflows using a 6% discount rate is $ Round to the nearest cent)Explanation / Answer
A.
Present value of the mixed stream
Year
Cash flow
PV factor @ 6%
PV of cash flow
1
900
0.94340
849.056604
2
1000
0.89000
889.99644
3
1000
0.83962
839.619283
4
1400
0.79209
1108.93113
5
2100
0.74726
1569.24216
Total
5256.85
B.
The maximum amount that I will pay for this stream of cash inflow is $5256.85
C.
If the opportunity cost is 8%, then PV will be
Year
Cash flow
PV factor @ 8%
PV of cash flow
1
900
0.92593
833.333333
2
1000
0.85734
857.33882
3
1000
0.79383
793.832241
4
1400
0.73503
1029.04179
5
2100
0.68058
1429.22471
Total
4942.77
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Year
Cash flow
PV factor @ 6%
PV of cash flow
1
900
0.94340
849.056604
2
1000
0.89000
889.99644
3
1000
0.83962
839.619283
4
1400
0.79209
1108.93113
5
2100
0.74726
1569.24216
Total
5256.85