Construct a cash flow diagram to find the present worth in year 0 at an interest
ID: 1102799 • Letter: C
Question
Construct a cash flow diagram to find the present worth in year 0 at an interest rate of 15% per year for the following situation. 1.24 Cash Flow, S -19,000 +8,100 Year 1-4 2.5 A family that won a $100,000 prize on America's Funniest Home Videos decided to put one-half of the money in a college fund for their child who was responsible for the prize. If the fund earned interest at 6% per year, how much was in the ac- count 14 years after it was started? 2.19 Henry Mueller Supply Co. sells tamperproof. normally open thermostats (i.e., thermostat closes as temperature rises). Annual cash flows are shown in the table below. Determine the future worth of the net cash flows at an interest rate of 10% per year. 2 3 4 5 6 7 8 Income. $1000 200 200 200 200 200 200 200 200 Cost $1000 90 90 90 90 90 90 90 90 YearExplanation / Answer
1.24 Present Value = Future value/ ((1+r)^t) where r is 15% and t is the time period Year 0 1 2 3 4 Cash flow -19000 8100 8100 8100 8100 Present value -19000 7043.48 6124.76 5325.88 4631.20 Present worth = sum of present values 4125 Present worth in year 0 = $4125 2.5 Amount invested = 50000 (one half of the money) Future Value = Present Value*((1+r)^t) where r is the interest rate and t is the time period r = 6%, and t = 14 Future value = 50000*(1.06)^14 Future value = $113045 2.19 Year 1 2 3 4 5 6 7 8 Income 200 200 200 200 200 200 200 200 Cost 90 90 90 90 90 90 90 90 Cash flow 110 110 110 110 110 110 110 110 Future value of an annuity = C[((1+r)^t-1)/r] where C is the annuity payment r is the interest rate t is the year The cash flow is like an annuity payment of $110 for 8 years and the interest rate is 10% Future value = 110*[(1.10)^8 - 1/.10] The future value is $1257.95