Question

eBook Problem 4-14 Uneven Cash Flow Stream Find the present values of the following cash flow streams. The appropriate interest rate is 6%. Round your answers to the nearest cent. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF0 = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Chapter 4 Tool Kit.) Year Cash Stream A Cash Stream B 1 $100 $300 2 400 400 3 400 400 4 400 400 5 300 100 Stream A $ Stream B $ What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest cent. Stream A $ Stream B $

Answer 1

CF A
Discount rate	0
Year	0	1	2	3	4	5
Cash flow stream	0	100	400	400	400	300
Discounting factor	1	1	1	1	1	1
Discounted cash flows project	0	100	400	400	400	300
NPV = Sum of discounted cash flows
NPV CF A =	1600
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
CF B
Discount rate	0
Year	0	1	2	3	4	5
Cash flow stream	0	300	400	400	400	100
Discounting factor	1	1	1	1	1	1
Discounted cash flows project	0	300	400	400	400	100
NPV = Sum of discounted cash flows
NPV CF B =	1600
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor