Problem: Relationship between future value and present value-Mixed stream
Using only the information in the accompanying table, answer the questions that follow.
a. 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).
Rate 5%
Year Cash flow Factor
1 800 1.05
2 900 1.102
3 1000 1.158
4 1400 1.216
5 2000 1.276.