Question

Find the present value of the streams of cash flows shown in the following​ table. Assume that the​ firm's opportunity cost is 14​%.

a. The present value of stream A is ​$

b. The present value of stream B is ​$

c. The present value of stream C is ​$

A				B				C
Year	Cash Flow			Year	Cash Flow			Year	Cash Flow
1	−$2,100			1	​$11,000			1−5	​10,000​/yr
2	​$3,000			2−5	​$5,100​/yr			6−10	​$7,900​/yr
3	​$4,100			6	​$7,100
4	​$6,100
5	​$8,000

Answer 1

Calculation of Present Value is shown below

Note - How did we find out the discounting factors

For year 1

= 1/1.14

= 0.8772

For year 2

= 0.8772 /1.14

= 0.7695

For year 3

= 0.7695 /1.14

= 0.6750

For year 4

= 0.6750 / 1.14

= 0.5921

For year 5

= 0.5921 / 1.14

= 0.5194

For year 6

= 0.5194 / 1.14

= 0.4556

and so on for remaining years