Question

1. Find the present values of the following cash flow streams at a 6% discount rate. Do not round intermediate calculations. Round your answers to the nearest cent.

   0

   1

   2

   3

   4

   5

   Stream A	$0	$100	$400	$400	$400	$300
   Stream B	$0	$300	$400	$400	$400	$100

   Stream A: $  

   Stream B: $  

2. What are the PVs of the streams at a 0% discount rate? Round your answers to the nearest dollar.

   Stream A: $  

   Stream B: $

Answer 1

(a)-The Present Value of the cash flows at a 6% discount rate

Present Value of Stream-A

Year	Annual cash flows ($)	Present Value Factor (PVF) at 6.00%	Present Value of annual cash flows ($) [Annual cash flow x PVF]
0	-	1.00000	-
1	100	0.94340	94.34
2	400	0.89000	356.00
3	400	0.83962	335.85
4	400	0.79209	316.84
5	300	0.74726	224.18
TOTAL			1,327.20

The Present Value of Stream-A is $1,327.20

Present Value of Stream-B

Year	Annual cash flows ($)	Present Value Factor (PVF) at 6.00%	Present Value of annual cash flows ($) [Annual cash flow x PVF]
0	-	1.00000	-
1	300	0.94340	283.02
2	400	0.89000	356.00
3	400	0.83962	335.85
4	400	0.79209	316.84
5	100	0.74726	74.73
TOTAL			1,366.43

The Present Value of Stream-B is $1,366.43

(b)-The Present Value of the cash flows at a 0% discount rate

The Present Value of Stream-A

Present Value of Stream-A = $100 + $400 + $400 + $400 + $300

= $1,600

The Present Value of Stream-B

Present Value of Stream-B = $300 + $400 + $400 + $400 + $100

= $1,600

NOTE    

The Formula for calculating the Present Value Factor is [1/(1 + r)ⁿ], Where “r” is the Discount/Interest Rate and “n” is the number of years.