Find the Present Value of an Income Stream Which Has

question 48

Multiple Choice

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 4th year,and a positive flow of $300 per year in Years 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 accruing 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) $528.21
• B) $1,329.00
• C) $792.49
• D) $1,046.41
• E) $875.18

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Definitions:

Periodic Basis

A method of accounting where financial and inventory records are updated at regular, fixed intervals.

Resale Value

The expected price at which an asset can be sold in the market after it has been used.

Incremental Costs

The additional costs incurred when a company increases production by one unit.

Special Order

An order that deviates from the normal production process or product line, often requiring special pricing and handling.