A) Harry recently graduated in engineering. His employer will give him a raise o

Question

A)

Harry recently graduated in engineering. His employer will give him a raise of $2500 per year if he passes the FE (Fundamentals of Engineering exam). Over a career of 40 years, what is the PW of the raise at i= 7%?

B)

What is the present worth of the following cashflows?

- $1400 per year for 8 years at 9%.

- $1400 per year starting in year 4 and continuing through year 11 at 9%.

Please show ALL work and answer all parts of the question. 5 stars will be given to whoever answers completely and correctly.

Explanation / Answer

PW = 2500/1.07 + 2*2500/1.07^2 + 3*2500/1.07^3 +....................40*2500/1.07^40

PW = 2500*[ 1/1.07 + 2/1.07^2 +.............40/1.07^40 ]

PW/1.07 = 2500* [1/1.07^2 + 2/1.07^3 +...........40/1.07^41]

PW - PW/1.07 = 2500*[ 1/1.07 + 1/1.07^2 + 1/1.07^3 +...........1/1.07^40 - 40/1.07^41]

0.06542*PW = 2500*10.835

PW = $414,061.187

B) PV = 1400 [ 1/1.09 + 1/1.09^2 + 1/1.09^3 +...........1/1.09^8]

PV = $7,748.75

PV = 1400/1.09^4 + 1400/1.09^5 +.......1400/1.09^11

PV = 1400*[1/1.09 + ..........1/1.09^8]*1/1.09^3

PV = $5983.45

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