Question

Stion 6 Calculate the annual worth (years 2 through 6) of cash flow given below. Use an interest rate yet vered of 10% per year. Year 0 1 2 3 4 5 6 ked out of 00 Cash Flow 70 30 60 60 60 60 Flag question Select one: O a. 48 O b. 65 O c. 58 O d. 53 O e. 34 II هنا للاح

Answer 1

The correct option is c.) 58

	Year	Cash Flow	Present Value
	0	70	70.000
	1	-	-
	2	30	24.793
	3	60	45.079
	4	60	40.981
	5	60	37.255
	6	60	33.868
		Total	251.977
	Prsent value, P= A/(1+r)^n
	P= 70 + 30/(1+0.1)^2 +60/(1+0.1)^3 +60/(1+0.1)^4 + 60/(1+0.1)^5 +60/(1+0.1)^6
	251.977
	Interest Rate=0.1
	Discount Factor=1.771561
	Annual Worth, A = P [r(1+r)^n]/(1+r)^n -1
	251.977[0.1*(1.1)^6]/(1.1)^6-1
	57.85
	58(approximately)

Answer 2

SOLUTION 

Interest rate, r = 10% = 0.1

=> 1 + r = 1.1

PV of Cash flows :

= 70 + 0/1.1 + 30/1.1^2 + 60/1.1^3 + 60/1.1^4 + 60/1.1^5 + 60/1.1^6

= 251.98 

Let the annual worth be X .

So, PV =  X (1.1^6 - 1)/(0.1*1.1^6)

=> 251.98  = X * 4.35526

=> X = 251.98 / 4.35526

=> X = 57.86 = 58 approx. 

So, annual worth of cash flows = 58 (Option C) (ANSWER).