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Find the present values of the following cash flow streams at an 8% discount rate. Round...

Find the present values of the following cash flow streams at an 8% discount rate. Round your answers to the nearest cent. 0 1 2 3 4 5 Stream A $0 $100 $350 $350 $350 $300 Stream B $0 $300 $350 $350 $350 $100 Stream A $ Stream B $ What are the PVs of the streams at a 0% discount rate? Stream A $ Stream B $

Solutions

Expert Solution

Answer>

Present Value of a cash flow is given by -

PV = CF / ((1+r)^n)

Where,

PV = Present value of the cash flow

CF = Cash flow

r = discount rate

n = number of years

Calculating PVs for stream A & B at 8% discount rate in excel using the above formula. Please refer to the below images:

As per the calculations above, clearly the PV of stream B is higher than stream A.

Now, The PVs when discount rate is 0%

As per the calculations above, the PV of stream B is equal to that of stream A.

Hope this answers your question.


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