Final answer:
To find the present worth in year 0 for the given cash flows, calculate the present value of each cash flow using the present value formula for annuities. Add up the present values to find the total present worth in year 0.
Step-by-step explanation:
To find the present worth in year 0 for the given cash flows, we need to calculate the present value of each cash flow using the present value formula for annuities. The formula is:
- PV = R * (1 - (1 + i)^-n) / i
Where PV represents present value, R represents the cash flow, i represents the interest rate per period, and n represents the number of periods. In this case, we have three cash flows: $15 million in year 0, $20 million in year 1, and $25 million in year 2. Given an interest rate i of 10%, we can substitute the values into the formula and calculate the present value for each cash flow.
The present value for the cash flow of $15 million in year 0 is $15 million. The present value for the cash flow of $20 million in year 1 is $18.18 million. The present value for the cash flow of $25 million in year 2 is $20.17 million. To find the total present worth in year 0, we add up these present values: $15 million + $18.18 million + $20.17 million = $53.35 million.