BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

UNEVEN CASH FLOW STREAM

  1. a. Find the present values of the following cash flow streams at an 8% discount rate.

    images

  2. b. What are the PVs of the streams at a 0% discount rate?

a.

Summary Introduction

To calculate: Present value of cash flow stream at 8% discounting rate.

Present value of cash flow: It is also called as discounted value, it defines that amount of money that is invested at a given rate of interest, which will further increase the amount of future cash flow at that particular time in future.

Explanation

Solution:

Calculation of present value of cash flow stream at 8% discounting rate

Year Discounting Rate Cash Flows Present value of cash flows
Stream A Stream B

Stream A

B×C

Stream B

B×D

A B C D E F
0 1.000000 0 0 0 0
1 0.92592 100 300 $92.592 $277.77
2 0.85733 400 400 $342.932 $342.932
3 0.79383 400 400 $317.532 $317.532
4 0.73502 400 400 $294.008 $294.008
5 0.68058 300 100 $204.174 $68.058
Present value for Stream A and Stream B $1248.23 $1300.306

Table (1)

Working Note to calculate discounting rate

Formula to calculate discounting rate for year 1

DiscountRate=1(1+Interestrate)Numberofyears=1(1+0.08)1=0.92592

Formula to calculate discounting rate for year 2

DiscountRate=1(1+Interestrate)Numberofyears=1(1+0

b.

Summary Introduction

To calculate: Present value of cash flow stream at 0% discounting rate.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

INTEREST RATE PARITY Six-month T-bills have a nominal rate of 4%, while default-free Japanese bonds that mature...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Discuss target market strategies

MKTG 12:STUDENT ED.-TEXT