Present Value of uneven stream of payments)

Question

you are given 3 investments alternatives to analyze.cash flows from these 3 investments are as fallows?

end of year A    B      C

1       2000  2000   5000

2       3000  2000  5000

3       4000  2000  (5000)

4       (5000)  2000   (5000)

5       5000  5000   15,000

what is the present value of each of these 3 investments if the appropriate discount rate is 10%.

Is any of these answers correct that i attempted below.



A) $25,174.10 or $6992.32

B) $25,763.40 or $9444.38

C) $56,274.40 or $10,819.86

Answer 1

You need to calculate the discount factors for the five years.

D1= (1/(1+i)) = 1/1.1

D2 = (1/(1+i))² = (1/(1.1))²

D3 = (1/(1.1))³

D4 = (1/(1.1))⁴

D5 = (1/1.1))⁵

The Present Value of ech stream of Cash flows is given as PV=D1*CF1 +D2*CF2+D3*CF3 +D4*CF4 +D5*CF5. I will let you do the claculations.