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Homework 6 Solution
2.53
Clyde’s parents paid $50,000 per year in Years 8 through 10 to increase his height by 3 inches. So the
hormone treatments can be represented by a 3yearlong uniform series. If we let X be the extra amount
per year that Clyde would make if he were taller, then Clyde’s increased earnings can be represented by
a 35yearlong uniform series in Years 26 through 60. To justify the cost of the hormones, the increased
earnings must be worth at least as much as the hormone treatments are worth. Because the two cash flow
series occur over different time periods and money has a time value, we have to calculate the equivalent
worth of the two series at a common point in time in order to compare them. The common point in time is
completely arbitrary. We could choose Time 0 (the day Clyde was born):
The equivalent worth of the hormone treatments at the end of Year 0 can be calculated by taking the
present worth of the cash flows at the end of Year 7 (using PA) and discounting that value by 7 years:
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 Fall '08
 Moore,L

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