Question

The annual worth for years 1 through infinity of $50,000 now, $10,000 per year in years 1 through 15, and $20,000 per year in years 16 through infinity at 10% per year is closest to

Answer 1

Answer:

The annual worth of cash flow is $17,394

Explanation:

The computation is shown below:

Present value  = F × (P|F,i,n) + A × (P|A,i,n)

= $50,000 + $10,000 × (P|A,10%,15) + ($20,000 ÷ 0.1) × (P|F,10%,15)

= $50,000 + $10,000 × 7.606 + ($20,000 ÷ 0.1) × 0.2394

= $173,940

Now

Annual Worth is

= P × (A|P,i,n)

= $173,940 × (A|P,10%,infinity)

= $173,940 × 0.1

= $17,394

Hence, the annual worth of cash flow is $17,394