Assume that your required rate of return is 12% and you are given the following stream of cash flows: $$\begin{array} { | c | c | }
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & \$ 10,000 \
\hline 1 & \$ 15,000 \
\hline 2 & \$ 15,000 \
\hline 3 & \$ 15,000 \
\hline 4 & \$ 15,000 \
\hline 5 & \$ 20,000 \
\hline
\end{array}$$ If payments are made at the end of each period, what is the present value of the cash flow stream? (Round to the nearest whole dollar)
A)$66,909
B)$57,323
C)$61,815
D)$52,345
E)$62,029

Question

Assume that your required rate of return is 12% and you are given the following stream of cash flows: $$\begin{array} { | c | c | } 
\hline \text { Year } & \text { Cash Flow } \
\hline 0 & \$ 10,000 \
\hline 1 & \$ 15,000 \
\hline 2 & \$ 15,000 \
\hline 3 & \$ 15,000 \
\hline 4 & \$ 15,000 \
\hline 5 & \$ 20,000 \
\hline
\end{array}$$ If payments are made at the end of each period, what is the present value of the cash flow stream? (Round to the nearest whole dollar)
A)$66,909
B)$57,323
C)$61,815
D)$52,345
E)$62,029

Quizplus · Accepted Answer

The correct answer is A. The present value of the cash flow stream is $66,909. This is calculated by using the formula for the present value of an annuity, which is:PV = CF * [1 - (1 + r)^-n] / rwhere:PV is the present valueCF is the cash flowr is the required rate of returnn is the number of periodsIn this case, the cash flow is $15,000 per year for 5 years, and the required rate of return is 12%. Plugging these values into the formula, we get:PV = $15,000 * [1 - (1 + 0.12)^-5] / 0.12= $15,000 * [1 - 0.5674] / 0.12= $15,000 * 0.4326 / 0.12= $66,909

Assume That Your Required Rate of Return Is 12% and You