EXAMPLE 1.11 A rental company spent $2500 on a new air compressor 7 years ago. The annual rental income from the compressor has been $750. The $100 spent on maintenance the first year has in- creased each year by $25. The company plans to sell the compressor at the end of next year for 1.7 Economic Equivalence 19 $150. Construct the cash flow diagram from the company's perspective and indicate where the present worth now is located. Solution Let now be time t = 0. The incomes and costs for years - 7 through 1 (next year) are tabulated below with net cash flow computed using Equation [1.5]. The net cash flows (one negative, eight positive) are diagrammed in Figure 1-9. Present worth P is located at year 0. End of Year Income $ 0 750 750 750 750 750 750 750 750 + 150 Cost $2500 100 125 150 175 200 225 250 275 Net Cash Flow $-2500 650 625 600 575 550 525 500 625 P = ? $650 5625 5600 $625 $575 S550 S525 5500 -7-6 -5 -4 -3 2 -1 0 1 Year $2500 2. Review text Example 1.11, in which a cash flow diagram was created to show income and expenses for a rental air compressor. The goal of this problem is to determine the present worth of the compressor. Follow these steps for a solution: a) Decompose the cash flow diagram into uniform series, gradient series, and single amounts as needed to prepare for use of the interest factor method of solution. Strive to represent the original cash flows using as few series and single amounts as possible. Depict your result as the sum of multiple cash flow diagrams. b) Use the interest factor method to determine the present worth of the air compressor at EOY 0. Note that the present worth is shown in the text as an amount P occurring in the next-to-last year of the timeline