Question

The following information is provided relating to a stream of cash flows: Year 1-4 5-10 Amount of cash flow $20,000 per year (payments at beginning of year) $55,000 per year (payments at end of year) Assume an interest rate of 10% compounded annually. Calculate the present value of the stream of cash flows above. To answer this question use the present value table factors given below. No credit will be awarded for this question using a means other than the table factors given below to answer this question. Factors from the present value of a lump sum table for: i = 10%: n = 4 0.680 n=5_ 0.620 n-6 0.570 n = 1 0.510 n = 8 0.470 n = 9 0.420 n = 10 0.390 Factors from the present value of an annuity table for: i = 10%: n = 4 3.170 n n n = 5 3.790 = 6 4.350 = 7 4.87€ n = 8 5.340 n = 9 5.760 n = 10 6.150

Answer 1

The present vaue of cash inflows
20000 X PVA(10%,4), =20000 x 3.170	$ 63,400
year	cash flows	PV@10%	PV of Cash flows
5	$ 55,000	0.620	$ 34,100
6	$ 55,000	0.570	$ 31,350
7	$ 55,000	0.510	$ 28,050
8	$ 55,000	0.470	$ 25,850
9	$ 55,000	0.420	$ 23,100
10	$ 55,000	0.390	$ 21,450
			$ 163,900	$ 163,900
Present Vaue of Cash flows		$ 227,300

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