How can I calculate the present worth of a cash flow?

Problem

On January 1st, 2004, you buy a $1,000 car. Annual maintenance cost for the first year is $100, and this cost will increase by $10 each year. At the end of four years you'll be able to sell the car cor $200.

What's the net present value of this cash flow if interest is at 4 % compounded annually?

Solution

Set up the following cash flow or open the "Analysis - Present value" example in the Help examples folder.

Comment	Type	Occurs	Date	Amount	Occurrences	Change	Step
Initial cost	outflow	once	1-1-2005	1000
Maintenance cost	outflow	annually	1-1-2004	100	4	10 (amount)	1
Residual value	inflow	once	1-1-2008	200

Enter 4 into the rate field and select annual compounding.

The net present value of the cash flow is -1,244.70, representing a disbursement of $1,244.70.