Question

(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	$	3,000	$	4,000
2		4,000		3,000		4,000
3		5,000		3,000		(4,000)
4		(6,000)		3,000		(4,000)
5		6,000		6,000		14,000

What is the present value of each of these three investments if the appropriate discount rate is 8 percent?

1. What is the present value of investment A at an annual discount rate of 8 percent __? (Round to the nearest cent).

2. What is the present value of investment B at an annual discount rate of 8 percent __? (Round to the nearest cent).

3. What is the present value of investment C at an annual discount rate of 8 percent __? (Round to the nearest cent).

Please show your work

Thank you=)

Answer 1

Present value of the Investment A at an annual discount of 8%

Period	CASH FLOW	Present value	Calculation
1	3,000	2,777.78	3000/(1+0.08)^1
2	4,000	3,429.35	4000/(1+0.08)^2
3	5,000	3,969.19	5000/(1+0.08)^3
4	(6,000)	(4,410.46)	(-6000)/(1+0.08)^4
5	6,000	4,083.57	6000/(1+0.08)^5
	TOTAL	9,849.32

Formula : CF/(1+i)^n

Present value of investment B at an annual discount of 8%

Period	CASH FLOW	Present value	Calculation
1	3,000	2,777.78	3000/(1+0.08)^1
2	3,000	2,572.01	3000/(1+0.08)^2
3	3,000	2,381.51	3000/(1+0.08)^3
4	3,000	2,205.23	3000/(1+0.08)^4
5	6,000	4,083.57	6000/(1+0.08)^5
	TOTAL	14,020.1

Present value of investment C at an annual discount of 8%

Period	CASH FLOW	Present value	Calculation
1	4,000	3,703.70	4000/(1+0.08)^1
2	4,000	3,429.35	4000/(1+0.08)^2
3	(4,000)	(3,175.35)	(4000)/(1+0.08)^3
4	(4,000)	(2,940.31)	(4000)/(1+0.08)^4
5	14,000	9,528.34	14000/(1+0.08)^5
	TOTAL	10,545.73