P5–34 Relationship between future value and present value: Mixed stream Using 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.)

Year (t) Cash flow 72 1 $ 800 900 3 1,000 4 1,500 5 2,000