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In: Economics

Use tables and cash flow diagram: The equivalent annual worth of an increasing arithmetic gradient is...

Use tables and cash flow diagram: The equivalent annual worth of an increasing arithmetic gradient is $135,300. If the cash flow in year 1 is $35,000 and the gradient amount is $19,000, what is the value of n at an interest rate of 10% per year?

Solutions

Expert Solution

Given information:

• Equivalent annual value is $135,300.

• Cash flow in year 1 is $35,000.

• Increasing cash flow is $19,000

• Interest rate is 10%.

Time period:

Time period can be calculated by using the following formula:

Substitute time period as 14 years by trial and error method and the respective values in Equation (1) to calculate time period.

While substituting time period as 14 years, equivalent annual value is greater than the calculated value. Hence, increase time period to 15 years following calculation is done.

After substitute of time period as 15 years, the values are closely equal. Hence, it is confirmed that the value of time period is year

Rahul Sunny answered 1 year ago
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