Consider the following uneven cash flow stream: Year Cash Flow 0 $0 1 $400 2 $50
ID: 2633551 • Letter: C
Question
Consider the following uneven cash flow stream: Year Cash Flow 0 $0 1 $400 2 $500 3 $750 4 $850 5 $1,000 a. What is the present (Year 0) value if the opportunity cost (discount) rate is 9 percent? b. Add an ouflow (or cost) of $2,000 at Year 0. What is the present value (or net present value) of the stream? Consider the following uneven cash flow stream: Year Cash Flow 0 $0 1 $400 2 $500 3 $750 4 $850 5 $1,000 a. What is the present (Year 0) value if the opportunity cost (discount) rate is 9 percent? b. Add an ouflow (or cost) of $2,000 at Year 0. What is the present value (or net present value) of the stream?Explanation / Answer
a. The present value is calculated by multiplying each cash flow with the PV factor at 9%.
b. If Initial cash flow at year 0 = 2000 will be written as -2000
Years Cash Flows Discount Factor (9%) PV of Cash flows 0 0 1 0.00 1 400 0.917431 366.97 2 500 0.84168 420.84 3 750 0.772183 579.14 4 850 0.708425 602.16 5 1000 0.649931 649.93 NPV 2619.04