Question
In: Finance
(Present value of an uneven stream of payments) You are given three investment alternatives to analyze....
(Present
value of an uneven stream of
payments)
You are given three investment alternatives to analyze. The cash flows from these three investments are as follows:
|
Investment |
|||||||||
|
End of Year |
A |
B |
C |
||||||
|
1 |
$ |
3,000 |
$ |
1,000 |
$ |
5,000 |
|||
|
2 |
|
4,000 |
1,000 |
5,000 |
|||||
|
3 |
|
5,000 |
1,000 |
(5,000) |
|||||
|
4 |
|
(6,000) |
1,000 |
(5,000) |
|||||
|
5 |
|
6,000 |
4,000 |
|
15,000 |
||||
What is the present value of each of these three investments if the appropriate discount rate is
15
percent?
a. What is the present value of investment A at an annual discount rate of
15
percent?
$nothing
(Round to the nearest cent.)
Solutions
Expert Solution
- Calculating the Present value of each Investment cash flow stream:-
| Year | Cash Flow of Stream of A ($) (a) | Cash Flow of Stream of B ($) (b) | Cash Flow of Stream of C ($) (c) | PV Factor @15% (d) | Present Value of Cash Flow of Stream of A ($) [(a)*(d)] | Present Value of Cash Flow of Stream of B ($) [(b)*(d)] | Present Value of Cash Flow of Stream of C ($) [(c)*(d)] |
| 1 | 3,000.00 | 1,000.00 | 5,000.00 | 0.86957 | 2,608.696 | 869.57 | 4,347.83 |
| 2 | 4,000.00 | 1,000.00 | 5,000.00 | 0.75614 | 3,024.575 | 756.14 | 3,780.72 |
| 3 | 5,000.00 | 1,000.00 | (5,000.00) | 0.65752 | 3,287.581 | 657.52 | (3,287.58) |
| 4 | (6,000.00) | 1,000.00 | (5,000.00) | 0.57175 | (3,430.519) | 571.75 | (2,858.77) |
| 5 | 6,000.00 | 4,000.00 | 15,000.00 | 0.49718 | 2,983.060 | 1,988.71 | 7,457.65 |
| 8,473.39 | 4,843.69 | 9,439.85 |
a). The present value of investment A at an annual discount rate of 15% is $8,473.39
b). The present value of investment B at an annual discount rate of 15% is $4,843.69
c). The present value of investment C at an annual discount rate of 15% is $9,439.85
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jeff jeffy answered 2 years agoRelated Solutions
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