Question

A set of cash flows begins at $22482 the first year, with an annual decrease of 10% for 10 years. If the interest rate is 8%, the future value is close to...

I need help with this question, i know its a geometric gradient series but what formulas do i use...

thanks

Answer 1

Answer :

Calculation of Future value

First Cash Flow = $22,482

Annual Decrease = 10%

Term = 10 years

Interest Rate = 8%

The Formula For Future value of geometric gradient series :

Where A1 = First Cash Flow

i = Interest Rate

n = Term

g = Annual Increase / ( Decrease)

So, putting the values in above formula

F = 22,482 x 10.056927

F = 226,099.83

So,future value is close to $ 226,100

If the first payment is made at the beginnig of first year, then future value will be :

$226,100 + 8% = $244,188