Answered

Westonci.ca connects you with experts who provide insightful answers to your questions. Join us today and start learning! Join our Q&A platform to get precise answers from experts in diverse fields and enhance your understanding. Discover detailed answers to your questions from a wide network of experts on our comprehensive Q&A platform.

Investment X offers to pay you $3,400 per year for nine years,whereas Investment X offers to pay you $5,400 per year five years. Which of these cash flow streams has the higher present value if the discount rate is 6 percent? If the discount rate is 22 percent?

Sagot :

fichoh

Answer:

At 6% ; $3400 has higher present value.

At 22% ; $5400 has higher present value

Explanation:

Using the PVA formula:

PVA = C({1 - [1 / (1 + r)^t]} / r )

Where ;

C = cashflow ; r = rate ; t = time

PVA of 3400 for 9 years at 6% = 0.06

PVA = 3400({1 - [1 / (1+ 0.06)^9]} / 0.06)

PVA = 3400([1 -[ 1 / 1.06^9]) / 0.06

PVA = 3400(0.4081015 / 0.06)

PVA = 3400(6.8016922)

PVA = 23125.753

PVA of 5400 for 5 years at 6%

PVA = 5400({1 - [1 / (1+ 0.06)^5]} / 0.06)

PVA = 5400([1 - [ 1 / 1.06^5]) / 0.06

PVA = 5400(0.2527418 / 0.06)

PVA = 5400(4.2123637)

PVA = 22746.764

B.)

PVA of 3400 for 9 years at 22% = 0.22

PVA = 3400({1 - [1 / (1+ 0.22)^9]} / 0.22)

PVA = 3400[1 -[ 1 / 1.22^9]) / 0.22)

PVA = 3400 (0.8329826 / 0.22)

PVA = 3400(3.7862848)

PVA = 12873.368

PVA of 5400 for 5 years at 22% = 0.22

PVA = 5400({1 - [1 / (1+ 0.22)^5]} / 0.22)

PVA = 5400([1 - [ 1 / 1.22^5]) / 0.22

PVA = 5400 (0.6300007 / 0.22)

PVA = 5400 (2.8636397)

PVA = 15463.654

Thanks for using our service. We aim to provide the most accurate answers for all your queries. Visit us again for more insights. Thank you for choosing our platform. We're dedicated to providing the best answers for all your questions. Visit us again. Get the answers you need at Westonci.ca. Stay informed with our latest expert advice.