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calculate the present worth of an expenditure of $85 per year for 6 years that starts...

calculate the present worth of an expenditure of $85 per year for 6 years that starts in 3 years from now if the interest rate is 20%. Construct a cash flow diagram as well

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Answer #1

Solution :- Present worth of an expenditure = 85 / (1 + 0.20)3 + 85 / (1 + 0.20)4 + 85 / (1 + 0.20)5 + 85 / (1 + 0.20)6 + 85 / (1 + 0.20)7 + 85 / (1 + 0.20)8.

= 85 / (1.20)3 + 85 / (1.20)4 + 85 / (1.20)5 + 85 / (1.20)6 + 85 / (1.20)7 + 85 / (1.20)8

= 85 / 1.728 + 85 / 2.0736 + 85 / 2.48832 + 85 / 2.985984 + 85 / 3.5831808 + 85 / 4.29981696

= 49.19 + 40.99 + 34.16 + 28.47 + 23.72 + 19.77

= $ 196.30 (approx).

Conclusion :- Present worth of expenditure in the given question = $ 196.30 (approx).

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