Question

Problem 4-14
Uneven Cash Flow Stream

1. Find the present values of the following cash flow streams. The appropriate interest rate is 6%. Round your answers to the nearest cent. (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 Chapter 4 Tool Kit.)

   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 cent.
   Stream A $   
   Stream B $  

Answer 1

Calculation of present value of stream A:
Time	Cashflow	PVF @6%	PV
1.00	100	0.9434	94.34
2.00	400	0.8900	356.00
3.00	400	0.8396	335.85
4.00	400	0.7921	316.84
5.00	300	0.7473	224.18
			1,327.20
Present value is $1327.20
Calculation of present value of stream B:
Time	Cashflow	PVF @6%	PV
1.00	300	0.9434	283.02
2.00	400	0.8900	356.00
3.00	400	0.8396	335.85
4.00	400	0.7921	316.84
5.00	100	0.7473	74.73
			1,366.43
Present value is $1366.43
Calculation of present value of stream A:
Time	Cashflow	PVF @0%	PV
1.00	100	1.0000	100.00
2.00	400	1.0000	400.00
3.00	400	1.0000	400.00
4.00	400	1.0000	400.00
5.00	300	1.0000	300.00
			1,600.00
Present value is $1600
Calculation of present value of stream B:
Time	Cashflow	PVF @0%	PV
1.00	300	1.0000	300.00
2.00	400	1.0000	400.00
3.00	400	1.0000	400.00
4.00	400	1.0000	400.00
5.00	100	1.0000	100.00
			1,600.00
Present value is $1600