614 For what value of X are the following two cash flows equ

6.14 For what value of X are the following two cash flows equivalent at a 10% interest rate? End of Year Flow A, $ Flow B, $ -10 0005000 5000 5000 5000 3500 4500 5500 6500

Solution

Present value of flow A=Present value of flow B

-10000+5000/(1+10%)^1+5000/(1+10%)^2+5000/(1+10%)^3+5000/(1+10%)^4=-X+3500/(1+10%)^1+4500/(1+10%)^2+5500/(1+10%)^3+6500/(1+10%)^4

X=(3500/(1+10%)^1+4500/(1+10%)^2+5500/(1+10%)^3+6500/(1+10%)^4)-(-10000+5000/(1+10%)^1+5000/(1+10%)^2+5000/(1+10%)^3+5000/(1+10%)^4)

=9623.32

The above should be the answer..