What is the value of an annual equivalent series for this cash flow using an interest...

What is the value of an annual equivalent series for this cash flow using an interest rate of 7%?

Years; 1,2 = $325, years 3,4= $275, years 5, 6 = $185?

Expert Solution

Statement showing present values of annual cash flows

Year Cash flow PV @ 7% of $ 1 PV of cash flows

325 1/1.07 = 0.935 303.875
325 (1/1.07)²= 0.873 283.725
275 (1/1.07)³= 0.816 224.4
275 (1/1.07)⁴= 0.763 209.825
185 (1/1.07)⁵= 0.713 131.905
185 (1/1.07)⁶= 0.666 123.21

Total = 1276.94

Formulae for calculating annual equivalent series =

[PV x Rate]/[1-(1 + Rate) ^{-No. of period}]

Annual equivalent series in the given case = [1276.94 x 0.07]/[1-(1 + 0.07) ^-6] = 267.897

ekkarill92 answered 1 year ago

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