Consider another set of net cash flow Year Cash Flow____ 0 yeasr $2,000_____ 1ye
ID: 2690907 • Letter: C
Question
Consider another set of net cash flow Year Cash Flow____ 0 yeasr $2,000_____ 1year 2,000 ____2 yeears 0_____3yeasr 1,500_____ 4years 2,500____ __5years 4,000____________________________________ a. What is the net present value of the stream if the opportunity cost of capital is 10%? __________________________________b. What is the value of the stream at the end of Year 5 if the cash flows are invested in an account that pays 10% annually??________________________________ c. What cash flow today (Year 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of Year 5?? (Assume that the cash flows for Year 1 through 5 remain the same.)
Explanation / Answer
Hi, If you like my answer rate me lifesaver first...that way only I can earn points. Thanks a) NPV = $ 9136.37 b) Value at the end of year 5 = NPV * (1.10)^5 = $ 14714.22 c) Future values of the other 5 cash flows = $11,493.20 Net future value of cash flow at year 0 = $20000 - $11493.20 = $8,506.80 so, year 0 cash flow needs to be = $5,282.05