The following information is provided relating to a stream of cash flows: Year A

ID: 2556282 • Letter: T

Question

 The following information is provided relating to a stream of cash flows:  Year     Amount of cash flow 1-4      $25,000 per year  (payments at the end of the year) 5-9      $20,000 per year  (payments at the end of the year)  Assume an interest rate of 6% compounded annually.  Calculate the present value of the stream of cash flows above.  Use the time value of money factors posted in canvas to answer this question. To access these factors, click modules and then scroll to week 11. Click on the link labeled present & future value table factors. No credit will be awarded for this question using a means other than these table factors to answer this question.

Explanation / Answer

Calculation of present value of the stream of cash flows

Year 1

Cash flow at the end of the year = $25,000

Interest rate 6%

Therefore, Present value of this cash flow = $25000/(1+ 0.06) = $23,585

Year 2

Cash flow at the end of the year = $25,000

Interest rate 6%

Therefore, Present value of this cash flow = $25000/(1+ 0.06)^2 = $22,250

Year 3

Cash flow at the end of the year = $25,000

Interest rate 6%

Therefore, Present value of this cash flow = $25000/(1+ 0.06)^3 = $20,990

Year 4

Cash flow at the end of the year = $25,000

Interest rate 6%

Therefore, Present value of this cash flow = $25000/(1+ 0.06)^4 = $19,802

Year 5