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What is the Present Worth (Pw) in Year 0 of $12,000 cash flow in Year 1...

What is the Present Worth (Pw) in Year 0 of $12,000 cash flow in Year 1 which then increases by $500 each year for Years 2 - 6. Use i=8%/yr

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Answer #1

Present Worth of amount after n years is given by :

PW = A/(1 + r)n where A = amount after n years , r = interest rate = 8% = 0.08 and n = time period

Here Cash flow in year 1 is 12000, In years 2 : 12500, In year 3 : 13000 , In year 4 : 13500 , In year 5 : 14000 and In year 6 : 14500.

Thus, Net Present Worth (PW) = 12000/(1 + 0.08)1 + 12500/(1 + 0.08)2 + 13000/(1 + 0.08)3 + 13500/(1 + 0.08)4 + 14000/(1 + 0.08)5 + 14500/(1 + 0.08)6

=> PW = 60736.19

Hence, The Present Worth (Pw) in Year 0 = 60736.19

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