Question

Draw diagram clearly and answer completely for rating

$5,000 inflow at time zero, $1000 per year outflow in years 1 and 2 at an interest rate of 10% per year, and an unknown future amount in year 2 1) Identify all engineering economy symbols involved and construct a cash flow diagram 2) Calculate the equivalent future amount of cash at end of year 2

Answer 1

1) In a cash flow diagram, all cash inflows are shown by upward arrow keys and all cash outflows are shown by downward arrow keys.

2) Future Value = P(F/P, i, n) - A(F/A, i, n)

                         = 5000(F/P, 10%, 2) - 1000(F/A, 10%, 2)

                         = 5000(1.210) - 1000(2.100)

                         = 6050 - 2100

                         = $3,950