At 1 = 8% per year compounded annually, determine the present worth of the cash flows shown below **Present Worth of Cash Flows**Given an interest rate $ i = 8\% $ per year compounded annually, determine the present worth of the cash flows shown in the chart below.**Cash Flow Diagram:**- The horizontal axis represents time in years.- Cash flows occur at the end of each year, from Year 0 to Year 6.- Vertical arrows represent the amount of cash flow, with the amount shown next to each arrow.**Details of Cash Flows:**- Year 0: $800- Year 1: $700- Year 2: $600- Year 3: $500- Year 4: $400- Year 5: No cash flow- Year 6: $300**Objective:**To determine the present worth of these cash flows using an 8% annual interest rate compounded annually. **Approach:**Using the formula for present worth $P$ of a future amount $F$:\[ P = \frac{F}{(1 + i)^n} \]where:- $F$ is the future amount,- $i$ is the interest rate,- $n$ is the number of periods (years).Calculate the present worth for each cash flow separately, then sum them up to get the total present worth.

Present Worth (PW) or Present Value (PV) states that money you have right now is worth more than the…

Answered: At i = 8% per year compounded annually,…

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At i = 8% per year compounded annually, determine the present worth of the cash flows shown below.

Economics Today and Tomorrow, Student Edition

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ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter6: Saving And Investing

Section6.1: Why Save?

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Concept explainers

Cash Flow in Engineering Economics (Interest and Equivalence)

The cash flows of a firm are of two categories such as cash inflows and cash outflows. Cash inflow is the money or income entering a firm during a specific period whereas cash outflow is the money exiting a firm during a specific period in the form of the expenses incurred by the firm. In other words, we can say that cash flow is a series of expenses and credits that run over the project over the lifetime it existed whereas cash inflows are all the income and gains the company earns as a result of its operations.

Question

At 1 = 8% per year compounded annually, determine the present worth of the cash flows shown below

**Present Worth of Cash Flows**

Given an interest rate $ i = 8\% $ per year compounded annually, determine the present worth of the cash flows shown in the chart below.

**Cash Flow Diagram:**

- The horizontal axis represents time in years.
- Cash flows occur at the end of each year, from Year 0 to Year 6.
- Vertical arrows represent the amount of cash flow, with the amount shown next to each arrow.

**Details of Cash Flows:**

- Year 0: $800
- Year 1: $700
- Year 2: $600
- Year 3: $500
- Year 4: $400
- Year 5: No cash flow
- Year 6: $300

**Objective:**
To determine the present worth of these cash flows using an 8% annual interest rate compounded annually.

**Approach:**
Using the formula for present worth $P$ of a future amount $F$:

\[ P = \frac{F}{(1 + i)^n} \]

where:
- $F$ is the future amount,
- $i$ is the interest rate,
- $n$ is the number of periods (years).

Calculate the present worth for each cash flow separately, then sum them up to get the total present worth.

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