(Present value of an uneven stream of payments?) You are given three investment alternatives to analyze. The cash flows...

Free

70.2K

Verified Solution

Question

Finance

(Present
value of an uneven stream of
payments?)
You are given three investment alternatives to analyze. The cashflows from these three investments are as? follows:
Investment
End of Year
????A
????B
????C
1
?$
3,000??
?$
3,000
?$
6,000??
2
??
4,000??
3,000
6,000??
3
??
5,000??
3,000
(6,000)
4
??
(6,000)
3,000
(6,000)
5
??
6,000??
5,000
??
16,000??
What is the present value of each of these three investments ifthe appropriate discount rate is
8
?percent?
a.??What is the present value of investment A at an annualdiscount rate of
8
?percent?

Answer & Explanation Solved by verified expert

3.9 Ratings (342 Votes)

A
Discount rate	0.08
Year	0	1	2	3	4	5
Cash flow stream	0	3000	4000	5000	-6000	6000
Discounting factor	1	1.08	1.1664	1.259712	1.360489	1.469328
Discounted cash flows project	0	2777.778	3429.355	3969.161	-4410.179	4083.499
NPV = Sum of discounted cash flows
NPV A =	9849.61
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor




B
Discount rate	0.08
Year	0	1	2	3	4	5
Cash flow stream	0	3000	3000	3000	3000	5000
Discounting factor	1	1.08	1.1664	1.259712	1.360489	1.469328
Discounted cash flows project	0	2777.778	2572.016	2381.497	2205.0896	3402.916
NPV = Sum of discounted cash flows
NPV B =	13339.3
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor




C
Discount rate	0.08
Year	0.00%	1	2	3	4	5
Cash flow stream	0	6000	6000	-6000	-6000	16000
Discounting factor	1	1.08	1.1664	1.259712	1.360489	1.469328
Discounted cash flows project	0	5555.556	5144.033	-4762.99	-4410.179	10889.33
NPV = Sum of discounted cash flows
NPV C =	12415.75
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

(Presentvalue of an uneven stream ofpayments?)You are given three investment alternatives to analyze. The cashflows from these three investments are as? follows:InvestmentEnd of Year????A????B????C1?$3,000???$3,000?$6,000??2??4,000??3,0006,000??3??5,000??3,000(6,000)4??(6,000)3,000(6,000)5??6,000??5,000??16,000??What is the present value of each of these three investments ifthe appropriate discount rate is8?percent?a.??What is the present value of investment A at an annualdiscount rate of8?percent?

Investment
End of Year	????A		????B		????C
1	?$	3,000??	?$	3,000	?$	6,000??
2	??	4,000??		3,000		6,000??
3	??	5,000??		3,000		(6,000)
4	??	(6,000)		3,000		(6,000)
5	??	6,000??		5,000	??	16,000??