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For the cash flow below, find the Present Worth (PW) if the interest rate is 10% per year.

Cash Flows:
1. 950
2. 10
3. 940
4. 930

Answer :

Final answer:

The Present Worth (PW) of the given cash flow, with an interest rate of 10% per year, is $2572.73.

Explanation:

To calculate the Present Worth (PW) of the given cash flow, we need to discount each cash flow amount to its present value using the given interest rate of 10% per year.

Let's calculate the present value of each cash flow:

  1. The present value of the first cash flow of $950 is calculated as follows:
  2. PV = 950 / (1 + 0.10)^1 = $863.64
  3. The present value of the second cash flow of $10 is calculated as follows:
  4. PV = 10 / (1 + 0.10)^1 = $9.09
  5. The present value of the third cash flow of $940 is calculated as follows:
  6. PV = 940 / (1 + 0.10)^1 = $854.55
  7. The present value of the fourth cash flow of $930 is calculated as follows:
  8. PV = 930 / (1 + 0.10)^1 = $845.45

Now, let's calculate the Present Worth (PW) by summing up the present values of all the cash flows:

PW = $863.64 + $9.09 + $854.55 + $845.45 = $2572.73

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