Problem 02.030 - Arithmetic change in cash flowsAn arithmetic cash flow gradient series equals $700 in year 1, $800 in year 2, and amounts increasing by $100 per year through year8. At i= 11% per year, determine the present worth of the cash flow series in year 0.The present worth of the cash flow series in year 0 is $

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ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Problem 02.030 - Arithmetic change in cash flows
An arithmetic cash flow gradient series equals $700 in year 1, $800 in year 2, and amounts increasing by $100 per year through year
8. At i= 11% per year, determine the present worth of the cash flow series in year 0.
The present worth of the cash flow series in year 0 is $

Expert Solution

Step 1: Defining present worth and gradient

The present worth or PW of a cash flow series is the current value of the cash flows that are paid by the cash flow series and is utilized to compute the worth of the cash flows paid by the cash flow series. An arithmetic gradient cash flow series is a cash flow series that includes a fall or rise of a constant amount in the cash flows.

The PW will be estimated with the help of the PW factor and gradient PW factor and the cash flow, the increment in cash flows, and the interest rate of the cash flow series. The PW of the cash flow series is the sum of the product of the PW and the gradient factor.

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