You have a choice of accepting either of two 5-year cash flow streams or lump-sum amounts. One cash flow stream is an annuity, and the other is a mixed stream. You accept alternative X or Y, either as a cash flow stream or as a lump-sum. Given the cash flow stream and lump-sum amounts associated with each, and assuming a 9 percent opportunity cost, which alternative (X or Y) and in which form (cash flow stream or lump-sum amount) would you prefer?
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Cash Flow stream
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End of year
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Alternative X
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Alternative Y
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1
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Rs. 700
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Rs. 1,100
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2
|
700
|
900
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3
|
700
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700
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4
|
700
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500
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5
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700
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300
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Lump-sum amount
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At time zero
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Rs. 2,825
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Rs. 2,800
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