Question

A cash flow series is increasing geometrically at the rate of 7​% per year. The initial payment at EOY 1 is ​$4 comma 000​, with increasing annual payments ending at EOY 20. The interest rate is 14​% compounded annually for the first seven years and 5​% compounded annually for the remaining 13 years. Find the present amount that is equivalent to this cash flow.

Answer 1

Answer:

$ 83,921.45  

Explanation:

The present value of the cash flows can determined  by discounting to today's terms all of the cash flows involved.

The cash flows for the first years were discounted using a 14% discount rate while the remaining years were discounted at 5% as shown in the attached.