Relationship between future value and present valuelong dashMixed stream Using the information in the accompanying table, *BELOW*,answer the questions that follow.

*DATA TABLE* Year (t) & Cash flow 1 - $900 2 - $900 3- $1,100 4 - $1,400 5 - $2,000

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 innvestments?

c. What effect, if any, would a 7% rather than a 5%opportunity cost have on your analysis?

*ANSWER*

a. The present value of the mixed stream of cash flows using a 5% discount rate is $_____? (Round to the nearest cent.)

b. The amount you would be willing to pay for an opportunity to buy this stream, assuming that you can at best earn 5% on your inestment, is $_____? (Round to the nearest cent.)

c. What effect, if any, would a 7% rather than a 5% opportunity cost have on your analysis?

A discount rate of 6% will cause the present value of the cash flow stream to be *CHOOSE BELOW* the present value obtained with a discount rate of 5%.

*--> Greater Than; Less Than; OR Equal To*