Investment X offers to pay you $5,000 per year for 9 years, whereas Investment Y

Question

Investment X offers to pay you $5,000 per year for 9 years, whereas Investment Y offers to pay you $7,400 per year for 5 years.

If the discount rate is 5 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

If the discount rate is 15 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Investment X offers to pay you $5,000 per year for 9 years, whereas Investment Y offers to pay you $7,400 per year for 5 years.

Explanation / Answer

Statement showing Cash flows Investment X Investment Y Particulars Time PVf@5% Amount PV Amount PV Cash Flows                   1.00                 0.9524                              5,000.00                              4,761.90                              7,400.00                              7,047.62 Cash Flows                   2.00                 0.9070                              5,000.00                              4,535.15                              7,400.00                              6,712.02 Cash Flows                   3.00                 0.8638                              5,000.00                              4,319.19                              7,400.00                              6,392.40 Cash Flows                   4.00                 0.8227                              5,000.00                              4,113.51                              7,400.00                              6,088.00 Cash Flows                   5.00                 0.7835                              5,000.00                              3,917.63                              7,400.00                              5,798.09 Cash Flows                   6.00                 0.7462                              5,000.00                              3,731.08                                           -   Cash Flows                   7.00                 0.7107                              5,000.00                              3,553.41                                           -   Cash Flows                   8.00                 0.6768                              5,000.00                              3,384.20                                           -   Cash Flows                   8.00                 0.6446                              5,000.00                              3,223.04                                           -   PV of Cash Flows                             35,539.11                           32,038.13 Statement showing Cash flows Investment X Investment Y Particulars Time PVf@15% Amount PV Amount PV Cash Flows                   1.00                 0.8696                              5,000.00                              4,347.83                              7,400.00                              6,434.78 Cash Flows                   2.00                 0.7561                              5,000.00                              3,780.72                              7,400.00                              5,595.46 Cash Flows                   3.00                 0.6575                              5,000.00                              3,287.58                              7,400.00                              4,865.62 Cash Flows                   4.00                 0.5718                              5,000.00                              2,858.77                              7,400.00                              4,230.97 Cash Flows                   5.00                 0.4972                              5,000.00                              2,485.88                              7,400.00                              3,679.11 Cash Flows                   6.00                 0.4323                              5,000.00                              2,161.64                                           -   Cash Flows                   7.00                 0.3759                              5,000.00                              1,879.69                                           -   Cash Flows                   8.00                 0.3269                              5,000.00                              1,634.51                                           -   Cash Flows                   8.00                 0.2843                              5,000.00                              1,421.31                                           -   PV of Cash Flows                             23,857.92                           24,805.95

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