Present values of single amounts and streams Below are two cash flow streams, A and B. Assuming that you have a 9% opportunity cost, which stream do you prefer?

Under each stream is a lump sum. If you like, you can choose the lump sum rather than the stream. For example, you can choose $2,825 right now rather than collecting cash flow stream A over five years. For each alternative, A and B, do you prefer the lump sum or the stream? Finally, if you can choose either lump sum or either stream, which choice do you make?

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Year 1 2 3 4 5 At time zero Cash flow stream Alternative A $ 700 700 700 700 700 $2,825 Alternative B $1,100 900 700 500 300 Lump sum $2,800