ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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The business plan for Knowlt, LLC, a start-up company that manufactures portable multigas detectors, showed equivalent annual cash
flows of $400,000 for the first 5 years. If the cash flow in year 1 was $310,000 and the constant increase thereafter was $50,000
per year, what interest rate was used in the calculation?
The interest rate used in the calculation was 10.60 ± 2% %.
Explanation
$400,000 = 310000 + $50,000(A/G, i, n)
$400,000 = 310000+ $50,000(A/G, i, 5)
(A/G, i, 5) = 1.800
Interpolate using interest tables or use Excel's Goal Seek, or Solver functions.
i = 10.6%
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Transcribed Image Text:The business plan for Knowlt, LLC, a start-up company that manufactures portable multigas detectors, showed equivalent annual cash flows of $400,000 for the first 5 years. If the cash flow in year 1 was $310,000 and the constant increase thereafter was $50,000 per year, what interest rate was used in the calculation? The interest rate used in the calculation was 10.60 ± 2% %. Explanation $400,000 = 310000 + $50,000(A/G, i, n) $400,000 = 310000+ $50,000(A/G, i, 5) (A/G, i, 5) = 1.800 Interpolate using interest tables or use Excel's Goal Seek, or Solver functions. i = 10.6%
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