You have been offered the opportunity to invest in a project that will pay $4,155 per...

You have been offered the opportunity to invest in a project that will pay $4,155 per year at the end of years one through three and $8,519 per year at the end of years four and five. These cash flows will be placed in a saving account that pays 18.89 percent per year. What is the future value of this cash flow pattern at the end of year five?

Expert Solution

Year	Cash flow	Future value of 1	Future value of cash flow
a	b	c=1.1889^(5-a)	d=b*c
1	$ 4,155	1.99793	$ 8,301.42
2	$ 4,155	1.68049	$ 6,982.44
3	$ 4,155	1.41348	$ 5,873.02
4	$ 8,519	1.18890	$ 10,128.24
5	$ 8,519	1.00000	$ 8,519.00

Total			$ 39,804.12

Working:

"a" denotes year in column "c".

For understanding future value of 1 in column "c":

Future value of cash flow of 1 of year 1 at the end of year 5		=	1.1889^(5-a)
		=	1.1889^(5-1)
		=	1.1889^4
		=	1.99793
Similarly, future value of cash flows of all years are calculated.

jeff jeffy answered 4 months ago

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