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A structural engineering consulting company is examining its cash flow requirements for the next 6 years. The company expects to spend $18,000 two years from now, $22,000 three years from now, and $8,000 five years from now. What is the present worth of the planned expenditures at an interest rate of 10% per year, compounded semiannually

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Answer:

The total present value of the expenditures= $36,136.7

Explanation:

Giving the following information:

Cash flows:

Cf2= $18,000

Cf3= $22,000

Cf5= $8,000

We need to calculate the present value of the planned expenditures at an interest rate of 10% per year, compounded semiannually.

i= 0.10/2= 0.05

We will use the following formula on each cash flow:

PV= FV/(1+i)^n

Cf2= 18,000/(1.05^4)= $14,808.65

Cf3= 22,000/(1.05^6)= $16,416.74

Cf5= 8,000/(1.05^10)= $4,911.31

The total present value of the expenditures= $36,136.7

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