Relationship between future value and present valueMixed stream Using the information in the

QUESTION

Relationship between future value and present valueMixed stream Using the information in the accompanying table, answer the questions that follow.Year (t)Cash flow1$ 800290031,00041,50052,000a. Determine the present value of the mixed stream of cash flows using a 5% discount rate.b. How much would you be willing to pay for an opportunity to buy this stream, assuming that you can at best earn 5% on your investments?c. What effect, if any, would a 7% rather than a 5% opportunity cost have on your analysis? (Explain verbally.)
ANSWER (A) 5% PV OF CASH FLOWS year PV factor @ 1 800 0.952381 761.9048 2 900 0.907029 816.3265 3 1000 0.863838 863.8376 4 1500 0.822702 1234.054 5 2000 0.783526 1567.052 TOTAL 5243.175 (b) Maximum that can be paid with 5% rate is 5243

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