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In: Economics

An arithmetic cash flow gradient series equals $650 in year 1, $750 in year 2, and...

An arithmetic cash flow gradient series equals $650 in year 1, $750 in year 2, and amounts increasing by $100 per year through year 12. At i = 15% per year, determine the present worth of the cash flow series in year 0.

The present worth of the cash flow series in year 0 is $

please help me with this question

Solutions

Expert Solution

Starting year 3, Cash flow in year N = [Cash flow in year (N - 1)] + $100

Present worth is computed as follows.

Year Cash Flow ($) PV Factor @15% Discounted Cash Flow ($)
1 650 0.8696 565.22
2 750 0.7561 567.11
3 850 0.6575 558.89
4 950 0.5718 543.17
5 1050 0.4972 522.04
6 1150 0.4323 497.18
7 1250 0.3759 469.92
8 1350 0.3269 441.32
9 1450 0.2843 412.18
10 1550 0.2472 383.14
11 1650 0.2149 354.66
12 1750 0.1869 327.09
Present Worth ($) = 5641.89

Excel screenshot:

Rahul Sunny answered 1 year ago
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