For the cash flows shown, calculate the equivalent annual worth in years 1 through 4 at an interest rate of 10% per year.
What will be an ideal response?
First find P in year 0, then find A over 4 years.
P = 250,000 + 275,000(P/A,10%,4) + 25,000(P/G,10%,4) + 25,000(P/F,10%,4)
= 250,000 + 275,000(3.1699) + 25,000(4.3781) + 25,000(0.6830)
= $1,248,250
A = 1,248,250(A/P,10%,4)
= 1,248,250(0.31547)
= $393,785
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