Question

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4) Assume that your required rate of return is 12 percent and you are given the following...

4) Assume that your required rate of return is 12 percent and you are given the following stream of cash flows:

Year Cash Flow

0 $10,000

1 $15,000

2 $15,000

3 $15,000

4 $15,000

5 $20,000

If payments are made at the end of each period, what is the present value of the cash flow stream?

A. $66,909

B. $57,323

C. $61,815

D. $52,345

show how to calculate it by financial calculator

Solutions

Expert Solution

Answer is A. $66,909

Stepwise approach to calculate NPV in a Financial calculator (BA II Plus Financial Calculator)

Step 1: Always begin by clearing the Cash Flow worksheet. To do so:

Press [CF] to turn the CF worksheet on.

Press [2nd] CLR Work Quit

Step 2: Press [CF]. The display should show: CF0= 0.00000.

Step 3: Type the numeric amount of the cash flow for time period, which would be 10000 here. Press [Enter].

Step 4: Press the down arrow key to display C01. Type in 15000, which is the cash amount for period 1, then press [Enter]. Press the down arrow key to display F01. Press [Enter] to accept the default amount of 1.00000.

Step 5: Press the down arrow key to display C02. Type in 15000, which is the cash amount for period 2, then press [Enter]. Press the down arrow key to display F02. Press the down arrow key again to accept F02, and to move to the next field which will display as C03.

Step 6: Type in 15000, which is the cash amount for period 3, then press [Enter]. Press the down arrow key to display F03. Press the down arrow key again to accept F03, and to move to the next field which will display as C04.

Step 7: Type in 15000, which is the cash amount for period 4, then press [Enter]. Press the down arrow key to display F04. Press the down arrow key again to accept F04, and to move to the next field which will display as C05.

Step 8: Type in 20000, which is the cash amount for period 5, then press [Enter]. Press the down arrow key to display F05. Press the down arrow key again to accept F05.

Step 9: Once all cash flows are inputted, use the up and down arrow keys to scroll through the Cash Flow worksheet to verify your input.

Step 10: Press [NPV] to display I = 0.0000. Enter the required rate of return 12. Press [Enter]. Press the down arrow key, then press [Cpt] to display the dollar amount of the NPV, which is $66,609.

jeff jeffy answered 1 year ago

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