Question

1. Find the present values of the following cash flow streams at a 3% discount rate. Round your answers to the nearest cent.

   0

   1

   2

   3

   4

   5

   Stream A	$0	$100	$450	$450	$450	$250
   Stream B	$0	$250	$450	$450	$450	$100

   Stream A $  

   Stream B $  

2. What are the PVs of the streams at a 0% discount rate?

   Stream A $  

   Stream B $  

Answer 1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

a.At 3%:

A:

Present value=100/1.03+450/1.03^2+450/1.03^3+450/1.03^4+250/1.03^5

=$1548.54(Approx)

B:

Present value=250/1.03+450/1.03^2+450/1.03^3+450/1.03^4+100/1.03^5

=$1564.78(Approx)

b.At 0%:

A:

Present value=100+450+450+450+250

=$1700

B:

Present value=250+450+450+450+100

=$1700