4 (a) Evaluate the cash flow diagram given by the figure below. Determine a Net Present Value and a Net Equivalent Annual Payment. Use an interest rate of i = 1%. (Hints: Arrows are end-of-the-year cash flows. These arrows pointing down represent costs and upward arrows are revenues. b) Repeat (a) with an interest rate of i = 10%.

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.