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2. Under a draft contract (draft A) Si expects to receive a series of monthly cash flows of E6,000. These are receivable on the first day of each month, from March to September (inclusive) of the current calendar year. a) Calculate the present value of this series of cash flows as at 1st February. (Assume an effective monthly rate of interest of 2% is appropriate.) [2 marks] A revision to the draft contract is then proposed. Under this draft (draft B), the number of cash flows payable to Si and their timings remain unchanged, however, the cash flow amounts vary each month. The first cash flow on 1st March is $2,500 each successive monthly cash flow thereafter is then $1,000 higher than the previous month. b) Calculate the present value of this revised series of cash flows to Si under draft B as at 1 st February. (Assume the same effective monthly rate of interest as was used in part a).) [3 marks] Another revision, draft C, is subsequently put forward. Under this version, Si receives the first cash flow of $3,000 on 1st February, and then receives $3,000 every three months after this. These cash flows continue for a total period of five years, so that 20 payments are received in total. Using the same effective interest rate as per the above parts: c) Calculate the present value of these cash flows to Si as at 1st February (the first payment date). [3 marks] d) State which draft contract Si should choose, if they had the choice, based solely on the above present values. [1 mark] e) State one possible reason why Si might opt for one of the other two draft contracts in actual practice rather than the draft contract identified under d). [1 mark] [Total: 10 marks]