Question

In: Accounting

​(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

​$

1 comma 0001,000  

​$

3 comma 0003,000

​$

6 comma 0006,000  

2

  

2 comma 0002,000  

3 comma 0003,000

6 comma 0006,000  

3

  

3 comma 0003,000  

3 comma 0003,000

( 6 comma 000 )(6,000)

4

  

( 4 comma 000 )(4,000)

3 comma 0003,000

( 6 comma 000 )(6,000)

5

  

4 comma 0004,000  

7 comma 0007,000

  

16 comma 00016,000  

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

1111

​percent?

a.  What is the present value of investment A at an annual discount rate of

1111

​percent?

​$nothing  

​(Round to the nearest​ cent.)

Solutions

Expert Solution

Calculation of Present value of each project :-
Project A Project B Project C
Year Cash Flows Present Value @11% Cash Flows Present Value @11% Cash Flows Present Value @11%
a b c = b/1.11^a d e = d/1.11^a f g = f/1.11^a
1 $                                                                                                                                  1,000.00 $                                    900.90 $                                 3,000.00 $                                 2,702.70 $     6,000.00 $                      5,405.41
2 $                                                                                                                                  2,000.00 $                                 1,623.24 $                                 3,000.00 $                                 2,434.87 $     6,000.00 $                      4,869.73
3 $                                                                                                                                  3,000.00 $                                 2,193.57 $                                 3,000.00 $                                 2,193.57 $    (6,000.00) $                     (4,387.15)
4 $                                                                                                                                (4,000.00) $                                (2,634.92) $                                 3,000.00 $                                 1,976.19 $    (6,000.00) $                     (3,952.39)
5 $                                                                                                                                  4,000.00 $                                 2,373.81 $                                 7,000.00 $                                 4,154.16 $   16,000.00 $                      9,495.22
Total Present value $                                 4,456.60 $                               13,461.50 $                    11,430.83
Present value of investment A at an annual discount rate of 1111 percent? $                                 4,456.60

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Thank you.


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