Suppose your firm is planning to invest in a project that will generate the following income stream:

Question:

Suppose your firm is planning to invest in a project that will generate the following income stream: a negative flow $300,000 per year for 5 years, a positive flow of $450,000 in the sixth year, and a positive flow of $650,000 per year in years 7 through 9.

What is the present value of this income stream if the appropriate discount rate is 10% for the first 3 years and 13% thereafter?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...