The annual worth for years 1 through infinity of $75,000 now, $25,000 per year in years 1 through 15 and $40,000 per year in years 16 through infinity at a 10% interest per year is closest to

Question

1.     The annual worth for years 1 through infinity of $75,000 now, $25,000 per year in years 1 through 15 and $40,000 per year in years 16 through infinity at a 10% interest per year is closest to:

(a)   $27,500     (b) $36,000    (c)   $44,000    (d)   $ 19,500

Answer 1

The annual worth for years 1 through infinity of $75,000 now, $25,000 per year in years 1 through 15 and $40,000 per year in years 16 through infinity at a 10% interest per year is closest to $44,000. This is because the present value of a stream of cash flow is calculated by taking into account the time value of money and discounting the future cash flows to their present value. The formula for calculating the present value is PV = CF1 / (1 + r)^1 + CF2 / (1 + r)^2 + ... + CFn / (1 + r)^n, where PV is the present value, CF is the cash flow, r is the discount rate, and n is the number of periods.

In this case, the present value of the cash flows in years 1-15 ($25,000 per year) and 16 to infinity ($40,000 per year) would be discounted using a 10% discount rate and added to the present value of the initial cash flow of $75,000 to arrive at the answer of $44,000.