Question

Assume that 25 years ago your dad invested $360,000, plus $38,000 in years 2 through 5, and $50,000 per year from year 6 on.

At a very good interest rate of 13% per year, determine the CC value.

The CC value is determined to be $  .

Answer 1

Formula to compute CC = A/i

A = series of equal consecutive payments made
i = interest rate

Firstly, we will compute present worth at 0 period as under:

PW = $360000 (P/F,13%,1) + $38000 (P/A,13%,4) (P/F,13%,1) + $50000 (P/A,13%,20) (P/F,13%,5)
= $360000 (0.88496) + $38000 (2.97447) (0.88496) + $50000 (7.02475) (0.54276)
= $318585.60 + $ 100026.90 + $190637.67
= $609250.17

Now compute AW from present worth as under:

AW = P (A/P,13%,25)
= $609250.17 (0.13643)
= $83120

CC = A/i
= $83120 / 13%
= $639384.62