Question

Given the following cash flow, the closest equivalent present worth in year 0 at i=10%/year is:

End of Year	0	1	2	3	4	5	6	7	8
Cash Flow, $	5000	0	0	0	500	500	500	500	500

Less than $6,200

Between $6,200-$6,500

Between $6,500-$6,800

Higher than $6,800

Answer 1

Answer- Between $ 6200-6500.
Explanation
Given,

i=10%

cash flows are

End of year	cash flow ($)
0	5000
1	0
2	0
3	0
4	500
5	500
6	500
7	500
8	500

Present worth or Net present value
NPV= CF⁰+[CF¹/(1+i)^1]+[CF²/(1+i)^2]+[CF³/(1+i)^3]+[CF⁴/(1+i)^4]+......[CFn/(1+i)^n]

NPV= 5000+[0/(1+0.10)^1]+[0/(1+0.10)^2+[0/(1+0.10)^3+[500/(1+0.10)^4+[500/(1+0.10)^5+[500/(1+0.10)^6+[500/(1+0.10)^7+[500/(1+0.10)^8
NPV= 5000+0+0+0+(500/1.4641)+(500/1.61051)+(500/1.7716)+(500/1.9487)+(500/2.1436)
NPV= 5000+341.5067+310.416+282.231+256.581+233.252
NPV= 6423.9867 or $ 6423.99.