Question

12. You anticipate a cash flow of $900 at the end of year 1, $600 at the end of year 2, and $800 at the end of year 4. What is the annual equivalent of the cash flow for years 1 through 4? In other words, what constant value “A” could you receive at the end of years 1-4 such that the two cash series of flows are economically equivalent? The interest rate is 6% annual compounded annually.

Answer 1

present value of cash flows

=900/(1+6%)^1+600/(1+6%)^2+800/(1+6%)^4

=2016.73

What is the annual equivalent of the cash flow for years 1 through 4

=2016.73/((1-(1+6%)^(-4))/6%)

=582.01

the above is answer..