Question

An arithmetic cash flow gradient series equals $450 in year 1, $550 in year 2, and amounts increasing by $100 per year through year 13. At i = 6% per year, determine the present worth of the cash flow series in year The present worth of the cash flow series in year O is $ .

Answer 1

Answer

Formula : PV = A(P/A , i , n) + G(P/G , i , n)

where A = Initial amount i.e. amount at period 1 = 450, i = interest rate = 6%, n = time period = 13, G = Arithmetic increase in amount = 550 - 450 = 100.

Hence, PV = 450*(P/A , 6 , 13) + 100*(P/G , 6 , 13) = 450*8.853 + 100*45.963

= 8580.15

Hence, The present worth of the series at Year 0 = 8580.15