Compute the value of P in the accompanying cash flow diagram, assuming that i = 9%.

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$1.97 ONLY

EXPERT ANSWER

i = 9% = 0.09

Present value of cash flows = CF0 / (1 + i)0 + CF1 / (1 + i)1 + CF2 / (1 + i)2 + CF3 / (1 + i)3 + CF4 / (1 + i)4 + CF5 / (1 + i)5 + CF6 / (1 + i)6 + CF7 / (1 + i)7

= 100 / (1 + 0.09)0 + 100 / (1 + 0.09)1 + 150 / (1 + 0.09)2 + 150 / (1 + 0.09)3 + 200 / (1 + 0.09)4 + 200 / (1 + 0.09)5 + 250 / (1 + 0.09)6 + 250 / (1 + 0.09)7

= 100 / (1.09)0 + 100 / (1.09)1 + 150 / (1.09)2 + 150 / (1.09)3 + 200 / (1.09)4 + 200 / (1.09)5 + 250 / (1.09)6 + 250 / (1.09)7

= 100 / 1 + 100 / 1.09 + 150 / 1.19 + 150 / 1.30 + 200 / 1.41 + 200 / 1.54 + 250 / 1.68 + 250 / 1.83

= 100 + 91.74 + 126.25 + 115.83 + 141.69 + 129.99 + 149.07 + 136.76

= 991.32

Value of P = $991.32