1. If the present worth of a project that yields 120,000 in regular cash flow over...

1. If the present worth of a project that yields 120,000 in regular cash flow over 40 periods was calculated to be 1.5 million, what interest rate was used? Report in percentage format with 3 digits after decimal point.

Expert Solution

Present Value = Future value/ ((1+r)^t)
where r is the interest rate and t is the time period
sum of present values = 1500000
Use excel to find r that is the interest rate.

r	0.0755
t	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20	21	22	23	24	25	26	27	28	29	30	31	32	33	34	35	36	37	38	39	40
cash flow	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000	120000
present value	111576	103743.4	96460.61	89689.08	83392.92	77538.74	72095.53	67034.43	62328.62	57953.16	53884.85	50102.14	46584.97	43314.71	40274.02	37446.79	34818.03	32373.81	30101.17	27988.07	26023.31	24196.48	22497.89	20918.54	19450.06	18084.66	16815.12	15634.7	14537.15	13516.64	12567.77	11685.52	10865.2	10102.46	9393.268	8733.862	8120.746	7550.67	7020.614	6527.767
sum of present values	1502943

The interest rate that was used was equal to 7.550% approximately.

Rahul Sunny answered 2 years ago

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