50.1K

Verified Solution

Link Copied!

$($Present value of complex cash flows$)$ You have an opportunity to make an investment that will pay $$500$ at the end of the first year, $$200$ at the end of the second year, $$200$ at the end of the third year, $$400$ at the end of the fourth year, and $$400$ at the end of the fifth year.

a$.$ Find the present value if the interest rate is $6$ percent. $($Hint: You can simply bring each cash flow back to the present and then add them up$.$ Another way to work this problem is to either use the $=$NPV function in Excel or to use your CF key on a financial calculator$-$but you'll want to check your calculator's manual before you use this key. Keep in mind that with the $=$NPV function in Excel, there is no initial outlay. That is$,$ all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that $C{F}_0$ is the initial outlay or cash flow at time $0,$ and, because there is no cash flow at time $0,C{F}_0=0.)$

b$.$ What would happen to the present value of this stream of cash flows if the interest rate were zero percent?

a$.$ What is the present value of the investment if the interest rate is $6$ percent? $$

$$

$($Round to the nearest cent.$)$

b$.$ What is the present value of the investment if the interest rate is zero percent? $$

$s$

$($Round to the nearest dollar.$)$

Answer & Explanation Solved by verified expert

See Answer