hanvinh

For any such problems, drawing a timeline would be of great help to simplify the understanding of cash flow……..
Here, total time horizon is 14 years…..i.e. first 4 years from now, when we won’t have any cash flow and 10 years thereafter when we will get $4000 each year.
First of all draw the timeline….
t               =  0  1  2   3   4   5   6   7   8   9   10  11  12  13  14
Payment =  0  0  0   0   0  ($4000 each year till year 14………)
Now, calculate the PV of cash inflow till year ending ‘4’ by using PVIFA formula or calculator….
ie. ((4000*(1+9%)^(14-4))-1)/(9%*(1+9%)^(14-4)) = $ 25670.63
PV of cash flow at year 0 shall be= 25670.63/(1+9%)^4= $ 18185.72
Regards,
Kailas Kale