Given a 4% required return, what is a $100 cash flow today, a $1,000 cash flow...

Given a 4% required return, what is a $100 cash flow today, a $1,000 cash flow at the end of 1 year, and a $100,000 cash flow at the end of five years, worth to you TODAY? Referring to the question above, what would those same cash flows be worth to you at the end of five years?

Expert Solution


Cash flow
Discount rate	0.04
Year	0	1	2	3	4	5
Cash flow stream	100	1000	0	0	0	100000
Discounting factor	1	1.04	1.0816	1.124864	1.1698586	1.216653
Discounted cash flows project	100	961.5385	0	0	0	82192.71
NPV = Sum of discounted cash flows
NPV Cash flow =	83254.25
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

FV

Future Value
Last period=	5
Compounding rate	4.000%
Year	0	1	2	3	4	5
Cash flow stream	100	1000	0	0	0	100000
Compounding factor	1.217	1.170	1.125	1.082	1.040	1.000
Compounded cash flows	121.665	1169.859	0.000	0.000	0.000	100000.000
FV = Sum of compounded cash flows
FV=	101291.52
Where
Compunding factor =	(1 + rate)^(Last period-Corresponding period in years)
Compounded Cashflow=	Cash flow stream*compounding factor

jeff jeffy answered 5 months ago

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