Question

a set of cash flows begins at 20000 the first year with a decrease of $2000 each year until n = 10. With an interest rate of 7%, what is the equivalent uniorm annual cash flow

Answer 1

Step-by-step explanation:

Present value (PV) is sum of all cash flows discounted at 7%.

(a) Annual decrease = $2,000

PV is computed as follows.

Year Cash Flow ($) PV Factor at 7% Discounted Cash Flow ($)

(A) (B) (A) x (B)

1 20,000 0.9346 18,692

2 18,000 0.8734 15,722

3 16,000 0.8163 13,061

4 14,000 0.7629 10,681

5 12,000 0.7130 8,556

6 10,000 0.6663 6,663

7 8,000 0.6227 4,982

8 6,000 0.5820 3,492

9 4,000 0.5439 2,176

10 2,000 0.5083 1,017

PV ($) = 85,041