Question

2. For the cash flows shown below, determine the total equivalent present worth & the equivalent annual worth in years 1 through 5. The interest rates specified are 10% for the years 1-3 and 12% for years 4 & 5. Draw the cash flow diagram as well. (Hint: Please note the different interest rates specified for different years] (4 + 2 + 2 pts) Year 0 1 2 3 4 5 Cash Flows, S 0 2000 2000 2000 4000 4000

Answer 1

Cash flow diagram: $2,000 $2,000 $2,000 $4,000 $4,000 FV | r= 10% or 0.1 PV1 = ? 10% or 0.1 PV2 = ? 10% or 0.1 PV3 = ? 12% or 0.12 PV4=? 5 12% or 0.12 PV5 = ? Present Value or annual present worth = FV = (1+r)" where, FV = Cash flows = Future Value r= interest rates n= years

$0 Year (n) CashFlows, $ (FV) Interest rates (0) Present Value = FV = (1+r)" $0.00 $2,000 0.1 $1,818.18 PV1 = $2,000/ (1+0.1)? $2,000 $1,652.89 PV2 = $2,000/ (1+0.1)? $2,000 $1,502.63 PV3 = $2,000/ (1+0.1) $4,000 0.12 $2,542.07 PV4 = $4,000/ (1+0.12) $4,000 0.12 $2,269.71 PV5 = $4,000/ (1+0.12) Total equivalent present worth $9,785.48 ON +