Question

Uneven Cash Flow Stream

1. Find the present values of the following cash flow streams. The appropriate interest rate is 6%. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF₀ = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Ch04 Tool Kit.xlsx.) Do not round intermediate calculations. Round your answers to the nearest cent.

   Year	Cash Stream A	Cash Stream B
   1	$100	$300
   2	400	400
   3	400	400
   4	400	400
   5	300	100

   Stream A: $  

   Stream B: $  

2. What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest dollar.

   Stream A $  

   Stream B $  

Answer 1

a

CF A
Discount rate	0.06
Year	0	1	2	3	4	5
Cash flow stream	0	100	400	400	400	300
Discounting factor	1	1.06	1.1236	1.191016	1.262477	1.338226
Discounted cash flows project	0	94.33962	355.9986	335.8477	316.83747	224.1775
NPV = Sum of discounted cash flows
NPV CF A =	1327.2
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
CF B
Discount rate	0.06
Year	0	1	2	3	4	5
Cash flow stream	0	300	400	400	400	100
Discounting factor	1	1.06	1.1236	1.191016	1.262477	1.338226
Discounted cash flows project	0	283.0189	355.9986	335.8477	316.83747	74.72582
NPV = Sum of discounted cash flows
NPV CF B =	1366.43
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

b

CF A
Discount rate	0
Year	0	1	2	3	4	5
Cash flow stream	0	100	400	400	400	300
Discounting factor	1	1	1	1	1	1
Discounted cash flows project	0	100	400	400	400	300
NPV = Sum of discounted cash flows
NPV CF A =	1600
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
CF B
Discount rate	0
Year	0	1	2	3	4	5
Cash flow stream	0	300	400	400	400	100
Discounting factor	1	1	1	1	1	1
Discounted cash flows project	0	300	400	400	400	100
NPV = Sum of discounted cash flows
NPV CF B =	1600
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor