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:

Book Value

The value of an asset as recorded on the balance sheet, calculated as the cost of an asset minus accumulated depreciation.

Acid-test Ratio

Acid-test ratio is a financial metric that measures a company's ability to pay off its short-term liabilities with its quick assets (cash, marketable securities, and current receivables) without selling any inventory.

Debt-to-equity Ratio

A ratio illustrating the proportional use of shareholder equity and debt in the acquisition of a company's assets.

Receivable Turnover

A financial metric indicating the efficiency of a company in collecting its accounts receivable or the effectiveness of its credit policy.