a.Present value=Cash flows*Present value of discounting factor(rate%,time period)
=10/1.108+22/1.108^2+34/1.108^3+46/1.108^4+58/1.108^5
=$117.19(Approx)
b.Present value=Cash flows*Present value of discounting factor(rate%,time period)
=58/1.108+46/1.108^2+34/1.108^3+22/1.108^4+10/1.108^5
=$135.4(Approx)
c.Present value of cash flows is different because of timing of cash flows ie the year in which such cash flows are arising.Given the discount rate;present value of $10 occurring at t=1 would not be the same as present value of $10 occurring at t=5.Higher the time period lower would be the present value of cash flow and vice-versa.
It is to be noted that if the discount rate would have been 0% the present value under both cases would have been same
Buestion . .. What is the present value of the following set of cash flows, discounted...
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