Answered: Determine the values of X and Y so that…

Determine the values of X and Y so that all three cash flows are equivalent at an interest rate of 12% per year compounded yearly. X: $ Y: $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

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.

Question

Consider the following three cash flow series:
End of Year Cash Flow Series A Cash Flow Series B
Cash Flow Series C
-$1,000
-$2,360
Y
1
$3,190
Y
2
1.5X
$2,790
Y
2.0X
$2,390
2Y
4
2.5X
$1,990
2Y
3.0X
$1,590
2Y
Determine the values of X and Y so that all three cash flows are equivalent at an interest rate of 12% per year compounded yearly.
X: $
Y: $
Carry all interim calculations to 5 decimal places and then round your final answer to the nearest dollar. The tolerance is +5.

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