Saturday
May 25, 2013

# Homework Help: engr. econ.

Posted by Anonymous on Tuesday, April 21, 2009 at 5:51pm.

i have a cash flow chart here. From O to 5 years, there are five arrows pointing down even on zero and ending on five. The annual payment from 0 to five is 500 dollars.

Then on 6 to 9, the arrows are increasing by a gradient of 50. So in year 6, it's 100, at 7, it is 150, 8=>200, and at 9 it's 250. Then starting from year 10 to year 14, there are arrows pointing up and they are all equal in length and the annual payment is 300.

What is the equivalent annual worth over the 14 year life for the following cash flow. 10% is interest.

I know i have to break it up into parts and convert them all to present value and find the annual worth.

I used equations like P=P(P/A, i, n) and F=P(F/P,i/n),.... the stuff in parentheses are numbers you get in a table.

Anyways, for P1 for year 0 to 5, I got -2395.50 dollars.

then for P2, I converted all the increasing part from year year 5 to 9 and go 535.90 dollars.

then i converted P2 back to P1 by P1=P2=(P/F,10%,6) and got 302.52 dollars.

• engr. econ. - economyst, Wednesday, April 22, 2009 at 9:52am

I'm having trouble visualizing your cash flow picture. Further, I dont have whatever lookup tables you are using. Sorry.
That said, the formula for converting something to a present value is PV=Vn/(1+r)^n -- where n is the number of years in the future, and r is the interest (discount) rate. So, something worth 535.90 six years from now would have a present value, using a 10% discount factor, of 535.90/(1.1)^6 = 302.50; very close to your 302.52

I hope this helps

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