Question
1. Consider two streams of cash flows, A and B. Stream As first cash flow is $10,200 and is received three years from today. Future
1. Consider two streams of cash flows, A and B. Stream As first cash flow is $10,200 and is received three years from today. Future cash flows in Stream A grow by 3 percent in perpetuity. Stream Bs first cash flow is $9,500, is received two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 11 percent.
a. What is the present value of each stream?
b. Suppose that the two streams are combined into one project, called
C. What is the IRR of Project C?
2. You can invest in an account that pays simple interest or an account that pays compound interest. In either case, you plan to invest $3,900 today and both accounts have an annual interest rate of 5 percent. How much more interest will you receive in the 11th year in the account that pays compound interest?
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