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Find the present values of the following cash flow streams. The appropriate interest rate is 12%....

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Finance

  1. Find the present values of the following cash flow streams. Theappropriate interest rate is 12%. (Hint: It is fairly easyto work this problem dealing with the individual cash flows.However, if you have a financial calculator, read the section ofthe manual that describes how to enter cash flows such as the onesin this problem. This will take a little time, but the investmentwill pay huge dividends throughout the course. Note that, whenworking with the calculator's cash flow register, you must enterCF0 = 0. Note also that it is quite easy to work theproblem with Excel, using procedures described in theCh04 Tool Kit.xlsx.) Do not roundintermediate calculations. Round your answers to the nearestcent.

    YearCash Stream ACash Stream B
    1$100$300
    2400400
    3400400
    4400400
    5300100

    Stream A: $  

    Stream B: $  

  2. What is the value of each cash flow stream at a 0% interestrate? Round your answers to the nearest dollar.

    Stream A $  

    Stream B $  

Answer & Explanation Solved by verified expert
3.9 Ratings (528 Votes)

Stream A
Year Cash flows Discount factor Present value
1 100 0.892857143               89.29
2 400 0.797193878            318.88
3 400 0.711780248            284.71
4 400 0.635518078            254.21
5 300 0.567426856            170.23
PV         1,117.31
Stream B
Year Cash flows Discount factor Present value
1 300 0.892857143            267.86
2 400 0.797193878            318.88
3 400 0.711780248            284.71
4 400 0.635518078            254.21
5 100 0.567426856               56.74
PV         1,182.40
The present value at 0% interest rate will be equal to the sum of cash flows
Stream A = 100+400+400+400+300 = $1600
Stream B = $1600

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