Question

Problem 5-18
Uneven cash flow stream

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	$300
   Stream B	$0	$300	$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

a.Stream A

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -0
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 3%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The present value of the cash flows is $1,591.67.

Stream B

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -0
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 3%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The present value of the cash flows is $1,613.32.

b. Stream A

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -0
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 0%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The present value of the cash flows is $1,750.

Stream B

Net present value is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -0
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate of 0%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The present value of the cash flows is $1,750.