Question

A set of cash flows begins at $20,000 the first year, with a decrease each year until n = 10 years. If the interest rate is 7% what is the present value when (a) The annual decrease is $2,000? (b) The annual decrease is 10%?

Answer 1

(a) The annual decrease is $2,000?

Solution: $2,140

Working:

1	20,000	7%	21400
2	18,000	7%	19260
3	16,000	7%	17120
4	14,000	7%	14980
5	12,000	7%	12840
6	10,000	7%	10700
7	8,000	7%	8560
8	6,000	7%	6420
9	4,000	7%	4280
10	2,000	7%	2140

　

(b) The annual decrease is 10%: $8,290.80

Solution: $8,290.80

Working:

1	20,000	7%	21400.00
2	18000	7%	19260.00
3	16200	7%	17334.00
4	14580	7%	15600.60
5	13122	7%	14040.54
6	11809.8	7%	12636.49
7	10628.8	7%	11372.84
8	9565.94	7%	10235.55
9	8609.34	7%	9212.00
10	7748.41	7%	8290.80