The net cash flows associated with development and sale of a new product are shown. Determine the beginning of period annual worth (i.e., for years 0 through 5) at an interest rate of 12% per year. The cash flows are in $1000 units.
What will be an ideal response?
Find P in year -1 and then convert to A over a 6-year period. In $1000 units,
P -1 = -120(P/F,12%,2) – 50(P/F,12%,3) + 90(P/A,12%,4)(P/F,12%,3)
= -120(0.7972) – 50(0.7118) + 90(3.0373)(0.7118)
= $63.322
A = 63.322(A/P,12%,6)
= 63.322(0.24323)
= $15.402 ($15,402)
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