QUESTION 4 0.5 point A cash flow consists of $100 income at the end of Year 1, $

Question

QUESTION 4 0.5 point A cash flow consists of $100 income at the end of Year 1, $200 at the end of Year 2, $300 at the end of Year 3, and so forth for ten years. What is the equivalent uniform annual cash flow? Use i-10%. QUESTION 5 0.5 You need to set up a bank account today that will fund the following cash flows: $1000 at the end of Year 1, $2000 at the end of Year 2, $3000 at the end of Year 3, and so forth for 20 years. Using an interest rate of 896, how much money must you deposit today in order to fund this series of payments? QUESTION 6 0.5

Explanation / Answer

Question 4

Cash flow is increasing by $100 annually and the first cash flow is $100. For 10 years and at the rate of 10 percent, the annual equivalent uniform amount of this series is given by

A = (100(P/A, 10%, 10) + 100(P/G, 10%, 10))(A/P, 10%, 10)

= (100*6.1446 + 100*22.8913)*0.1627

= $472.56

This is the required annual cash flow

Question 5

In this case we need to find the present value of the given cash flow using the same principle. Cash flow is increasing by $1000 annually and the first cash flow is $1000. For 20 years and at the rate of 8 percent, ind the present value P

P = 1000(P/A, 8%, 20) + 1000(P/G, 8%, 20)

= 1000*9.8181 + 1000*69.0898

= $78,907.94

This is the required value.

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