Relationship between future value and present value


Task: Relationship between future value and present value—Mixed stream Using only the information in the accompanying table, answer the questions that follow.

Q1. Determine the present value of the mixed stream of cash flows using a 5% discount rate.

Q2. 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?

Q3. What effect, if any, would a 7% rather than a 5% opportunity cost have on your analysis? (Explain verbally.)   

Rate    5%    
Year    Cashflow    Factor
1            800         1.05
2            900        1.102
3           1000       1.158
4           1400       1.216
5           2000       1.276

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Finance Basics: Relationship between future value and present value
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