TIME LINE

Find the present value of an income stream which has a negative flow of $100 per year for 3 years.A positive flow of $200 in the fourth year and positive flow of $300 per year in year 5 through 8.The appropriate discount rate is 4 percent for each of the first 3 years and 5 percent for each of the later years.Thus, a cash flow occurring in year 8 should be discounted at 5 percent for some years and 4 percent in other years.All payments occur at year end.

a.Draw a time line to illustrate the above discussed cash flow streams.

b.Estimate the present value of these cash flows.