Question
In: Finance
Havana Inc. has identified an investment project with the following cash flows. If the discount rate...
Havana Inc. has identified an investment project with the following cash flows. If the discount rate is 9 percent, what is the future of these cash flows in year 6?
Year 1: $910
Year 2: $1140
Year 3: $1360
Year 4: $2100
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Expert Solution
The future value of cash flows is calculated as follows
=cf/(1+r) power n
Where cf is cash flow
R is discounting rate and
N is no of periods
In the given there are 4 cashflows per annum in year 1,2,3 and 4 respectively and no of periods For maturity for year 1,2,3,4 cashflows are 5,4,3,2 since we have to find future value at the end of year6 and discounting rate is 9‰ per annum.
Substitute the values in above formula I. E
=$910/(1+0.09)power5 +$1140/(1+0.09)power4 +$1360/(1+0.09)³+$2100/(1+0.09)²
=$910/0.6499+$1140/0.7084+$1360/0.7722+$2100/0.8417
=$1400.1478+$1609.2030+$1761.2394+2495.0100
=$7265.6002
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