the installation of a compressor is estimated to generate the following net cash

Question

the installation of a compressor is estimated to generate the following net cash flows. the effective date of the evaluation is May 1, 2014. The projections shown are based on a calendar year:

Year:                                 Net Cash Flow

1 (8 months)                    $ 8,000

2                                      $6,000

3                                      $5,000

4.                                     $2,000

Using mid-period discounting, find the present net worth of the net cash flows as of May 1, 2014 at 18% compounded annually. Assume all cash flows (in or out) occurr at the middle of the period.

Explanation / Answer

Present net worth of the net cash flows = 8000/1.18^(1/2)+ 6000/1.18^(3/2) + 5000/1.18^(5/2) + 2000/1.18^(7/2)

Present net worth of the net cash flows = $ 16471.78

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