Consider two cash flow streams, where each will return the ith payment after i years: 100, 140, 131 and 90, 160, 120. Is it possible to tell which cash flow stream is preferable without know- ing the interest rate?

## EXPERT ANSWER

Cash Flow 1 100, 140, 131 andCash Flow 2 90, 160, 120.

let us assume interest rate is 10% and compounding annually then pv of cash flows as follows

Cash Flow 1

Period | Cash Flow | Present Value | |

1 | 100 | 100 | |

2 | 140 | 127.27 | |

3 | 131 | 108.26 |

For the Cash Flow Series **PV = $335.54**

Cash Flow 2

Period | Cash Flow | Present Value | |

1 | 90 | 90 | |

2 | 160 | 145.45 | |

3 | 120 | 99.17 | |

For the Cash Flow Series **PV = $334.63**