(Present value of an uneven stream of payments) You are given three investment a
ID: 2619042 • Letter: #
Question
(Present value of an uneven stream of payments) You are given three investment alternatives to analyze. The cash flows from these three investments are as follows: Investment End of Year $ 3,000 4,000 5,000 (6,000) 6,000 $2,000 2,000 2,000 2,000 4,000 $ 6,000 2 6,000 (6,000) (6,000) 16,000 4 What is the present value of each of these three investments if the appropriate discount rate is 13 percent? a. What is the present value of investment A at an annual discount rate of 13 percent? $(Round to the nearest cent.) b. What is the present value of investment B at an annual discount rate of 13 percent? $(Round to the nearest cent.) c. What is the present value of investment C at an annual discount rate of 13 percent? $(Round to the nearest cent.)Explanation / Answer
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
1.Present value=3000/1.13+4000/1.13^2+5000/1.13^3-6000/1.13^4+6000/1.13^5
=$8829.35(Approx)
2.Present value=2000/1.13+2000/1.13^2+2000/1.13^3+2000/1.13^4+4000/1.13^5
=$8119.98(Approx).
3.Present value=6000/1.13+6000/1.13^2-6000/1.13^3-6000/1.13^4+16000/1.13^5
=$10854.56(Approx).
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