What would be the equal annual annuity for Wallflowers Florist, Inc.if the cost of capital is 10% and the initial investment is $50,000 (rounded)?
$$\begin{array} { | c | c | }
\hline \text { Year } & \text { Cash Inflows } \
\hline 1 & \$ 25,000 \
\hline 2 & \$ 30,000 \
\hline 3 & \$ 10,000 \
\hline
\end{array}$$

Question

What would be the equal annual annuity for Wallflowers Florist, Inc.if the cost of capital is 10% and the initial investment is $50,000 (rounded)?
$$\begin{array} { | c | c | } 
\hline \text { Year } & \text { Cash Inflows } \
\hline 1 & \$ 25,000 \
\hline 2 & \$ 30,000 \
\hline 3 & \$ 10,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The equal annual annuity is $2,024. This can be calculated using the following formula:Annuity = Initial Investment * (Cost of Capital / (1 - (1 + Cost of Capital)^-Years))Annuity = $50,000 * (0.10 / (1 - (1 + 0.10)^-3))Annuity = $50,000 * (0.10 / (1 - 0.7513))Annuity = $50,000 * (0.10 / 0.2487)Annuity = $50,000 * 0.4024Annuity = $20,120The equal annual annuity is $20,120.

What Would Be the Equal Annual Annuity for Wallflowers Florist