Question

Discounted Tires plans to save $10,866, $20,585, and $27,782 at the end of each year for Years 1 to 3, respectively. If it earns 5 percent on its savings, how much will the firm have saved at the end of Year 3?

Answer 1

FV factor = (1+r)^n

here,

r=5%=>0.05.

n = 2,1,0..................(since saving is made at the end of year 1 , two years remain till end of year 3, saving  is made at end of year 2, one year remains till end of year 3, for saving made at end of year 3, zero years remain till end of year3)

year	cash flow	FV factor	cash flow * FV factor
1	10,866	(1.05)^2=>1.1025	(10,866*1.1025)=>11,979.765
2	20,585	(1.05)^1=>1.05	(20,585*1.05)=>21,614.25
3	27,782	(1.05)^0=>1	(27,782*1)=>27,782
		Total	$61,376.02