Question

A cash flow sequence starts in year 1 at $3000 and decreases by $200 each year through year 10.

a. Determine the value of gradient, G

b. Determine the amount of cash flow in year 8

c. Determine the value of n for the gradient

Answer 1

A cash flow sequence starts in year 1 at $3000 and decreases by $200 each year through year 10.

a. Determine the value of gradient, G

Answer-In this question, the value of G (gradient) will be $200.

Here the gradient is a decreasing linear gradient. It’s a specific amount that decreases every year.

b. Determine the amount of cash flow in year 8

Answer-The cash flow at the year 8 will be $1,600.

Cash flow at the 1^st year is $3000

$200 decreases for next 7 years. So decrease will be $1400 (200*7)

So at the end of 8^th year the cash flow will be $1400

c. Determine the value of n for the gradient

Answer-The value of n for the gradient will be 10 years.

When we compensate the gradients and convert it into uniform series we have to take n=10.

So the value of n will be 10 years.