Question

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

1.Stream A

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$0.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the interest rate of 6%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 6% interest rate is $1,327.20.

Stream B

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$0.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the interest rate of 6%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 6% interest rate is $1,366.43.

2. Stream A

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

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

Net Present value of cash flows at 0% interest rate is $1,600.

Stream B

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

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

Net Present value of cash flows at 0% interest rate is $1,600.

In case of any query, kindly comment on the solution.