Given Cash flows for an investment Year 2 3 4 5 Cash flow 40

Given: Cash flows for an investment. Year 2 3 4 5 Cash flow $400 500 600 700 -2,000 Required: EUAC at 5% per year. Select one O a. $70.62 O b. $49.97 c. $74.63 d. $64.80

Solution

First we have to calculate the Net Present Value.

NPV=CF1/(1+r)+CF2/(1+r)(1+r)+CF3/(1+r)(1+r)(1+r)+CF4/(1+r)(1+r)(1+r)(1+r)-CF5/(1+r)(1+r)(1+r)(1+r)(1+r)

       =400*.9523+500*.9070+600*.8638+700*.8227-2000*.7835

       =380.95+453.52+518.3+575.89-1567

       =361.66

Equivalent Annual Uniform Cash flow= NPV/No of years

                                                     =361.66/5 =72.33

It represents the unform cash flow in each of the 5 years.