Consider another uneven cash flow stream:
Year Cash Flow
0 3,000
1 2,000
2 1,500
3 0
4 2,000
5 4,000
a. What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 8 percent?
b. What is the future (Year 5) value of the cash flow stream if the cash flows are invested in an account that pays 8 percent annually?
c. What cash flow today (Year 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of Year 5? (Assume that the cash flows for Years 1 through 5 remain the same.)