Calculate the present worth.
Explanation of Solution
The cash flow in Year 0 (CF0) is -$10,000 and in Year 1 (CF1) is $2,000. From Year 2 to 4 is $5000. The time period (n) is 3.
The market rate (MR) is 20%. The inflation rate (f) is 5%.
The interest rate (if) can be calculated as follows:
The interest rate is 14.29%.
The present worth (PW) without considering the inflation can be calculated as follows:
The present worth is $443.33.
The present worth (PW) with considering the inflation can be calculated as follows:
The present worth is $442.75.
The present worth can be calculated using a spreadsheet as follows:
The present worth (CV) of individual cash flow can be found using a spreadsheet function as follows:
= $B7/(1 + $B$2)^$A7
The above function is for calculating the present value of the cash flow in Year 2.
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Chapter 14 Solutions
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