Consider a deterministic cash flow stream (left(x_{0}, x_{1}, x_{2}, ldots, x_{n} ight)) with all positive flows. Let
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Consider a deterministic cash flow stream \(\left(x_{0}, x_{1}, x_{2}, \ldots, x_{n}\right)\) with all positive flows. Let \(\mathrm{PV}(r)\) denote the present value of this stream at an interest rate \(r\).
(a) If \(r\) decreases, does PV ( \(r\) ) increase or decrease?
(b) Solve the Simplico gold mine problem with \(r=4 \%\) and find that the value of the lease is \(\$ 22,1\) million. Can you explain why the value decreased relative to its value with \(r=10 \%\) ?
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