Business, 25.02.2020 21:21 joshblubaugh

Present valuelong dash—Mixed streams Consider the mixed streams of cash flows shown in the following table,

year A B

1 $37,500 $12,500
2 $31,250 $18,750
3 $25,000 $25,000
4 $18,750 $31,250
5 $12,500 $37,500
Totals $125,000
$125,000

a. Find the present value of each stream using a 12% discount rate.
b. Compare the calculated present values and discuss them in light of the undiscounted cash flows totaling $125,000 in each case.

a. The present value of the cash flows of stream A is

$.

(Round to the nearest dollar.)

The present value of the cash flows of stream B is

$.

(Round to the nearest dollar.)

b. Compare the calculated present values and discuss them in light of the undiscounted cash flows totaling $ in each case. (Select the best answer below.)

A. Cash flow stream A, with a present value of $ is higher than cash flow stream B's present value of

$ because the larger cash inflows occur in A in the later years when their present value is greater, while the smaller cash flows are received in the earlier years.

B. Cash flow stream A, with a present value of $ is higher than cash flow stream B's present value of

$ because the larger cash inflows occur in A in the early years when their present value is greater, while the smaller cash flows are received further in the future.

C. Cash flow stream A, with a present value of $ is lower than cash flow stream B's present value of

$ because the smaller cash inflows occur in A in the early years when their present value is greater, while the larger cash flows are received further in the future.

D.

Cash flow stream A, with a present value of $, is higher than cash flow stream B's present value of

$ because the larger cash inflows occur in A in the early years when their present value is greater, while the smaller cash flows are received further in the future.

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Present valuelong dash—Mixed streams Consider the mixed streams of cash flows shown in the following...

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