Question

Draw and explain the cash flow diagram of the following PW calculated at time 0. eG(1 + i)2-1,2) + R(슭(1 + i)4-1, 2)6-11)

Answer 1

Answer:

Cash flow diagram

Year	Cash flow
1	C+E
2	E+R
3	N+R
4	R
5	A
6	A
7	K

	Discount Rate
Year	i	(1+i)^2-1	(1+i)^4-1
0
1	C	E
2		E	R
3	N		R
4			R
5		A
6		A
7	K

From above table it is clear that cash flow N and K are occured in 3rd and 7th year respectively which was discounted to year 1 with discount rate i and then C+ discounted value of N and K are discounted to year 0 with discount rate i.

cash flow E is occured in 1 st and 2 nd year which was discounted to year 0 using annuity formula with discount rate

(1+i)^2-1.

cash flow A is occured in 5th and 6th year which was discounted to year 4 using annuity formula with discount rate

(1+i)^2-1. and then this discounted value is further discounted to year 0 with discount rate i.

cash flow R is occured in 2nd, 3rd and 4th year which was discounted to year 1 using annuity formula with discount rate

(1+i)^4-1. and then this discounted value is further discounted to year 0 with discount rate i.