Consider the following three cash flow series: End of Year Cash Flow Series A Cash Flow...

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Consider the following three cash flow series: End of Year Cash Flow Series A Cash Flow Series B Cash Flow Series C 0 -$1,000

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Answer 1

Answer #1

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Cash flow series A net value = -1000+ X/1.14 + 1.5X/(1.14)² + 2X/(1.14)³ + 2.5X/(1.14)⁴ + 3X/(1.14)⁵ = -1000 + 5.53X

Cash flow series B net value = -2680 + 2990/1.14 + 2690/(1.14)² + 2390/(1.14)³ + 2090/(1.14)⁴ + 1790/(1.14)⁵ = $3937

Cash flow series C net value = Y + Y/1.14 + Y/(1.14)² + 2Y/(1.14)³ + 2Y/(1.14)⁴ + 2Y/(1.14)⁵ = 5.48Y

To ensure equivalent at TVOM at 15percent, we have Cash flow A net value = Cash flow B net value -1000 + 5.53X = 3937 X = $892.77

Similarly, Cash flow C net value = Cash flow B net value 5.48Y =3937 Y = $718.43

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Consider the following three cash flow series: End of Year Cash Flow Series A Cash Flow...

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