For the cash flows shown, find the value of x that makes the equivalent annual worth in years 1 through 7 equal to $300 per year. Use an interest rate of 10% per year.





What will be an ideal response?


Find P in year 0 and then P so that A = $300

P 0 = x + 300(P/A,10%,6) + x(P/F,10%,7)
A = P 0 (A/P,10%,7) = 300

Substitute equation for P 0
[x + 300(P/A,10%,6) + x(P/F,10%,7)](A/P,10%,7) = 300
[x + 300(4.3553) + x(0.5132)](0.20541) = 300
0.31083 x = 31.61
x = $101.71

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