Unit 6 Question 13:

(Present value of complex cash flows) You have an opportunity to make an investment that will pay $100 at the end of the first year, $200 at the end of the second year, $100 at the end of the third year, $100 at the end of the fourth year, and $300 at the end of the fifth year. a. Find the present value if the interest rate is 8 percent. (Hint: You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the = NPV function in Excel or to use your CF key on a financial calculator-but you'll want to check your calculator's manual before you use this key. Keep in mind that with the = NPV function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that CF0 is the initial outlay or cash flow at time 0 , and, because there is no cash flow at time 0,CF0=0.) b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent? a. What is the present value of the investment if the interest rate is 8 percent? (Round to the nearest cent.)