Question

1.) What is the future value after 3 years of the cashflow below if the interest rate is 4%?

YR: 1 2 3

CF: 500 400 300

2.) What is the present value of the cash flows above if the discount rate is 12%?

Please show work + formulas used. Studying for an exam.

Answer 1

1

Future Value
Last period=	3
Compounding rate	4.000%
Year	0	1	2	3
Cash flow stream	0	500	400	300
Compounding factor	1.125	1.082	1.040	1.000
Compounded cash flows	0.000	540.800	416.000	300.000
FV = Sum of compounded cash flows
FV=	1256.80
Where
Compunding factor =	(1 + rate)^(Last period-Corresponding period in years)
Compounded Cashflow=	Cash flow stream*compounding factor

2

Cash flow
Discount rate	0.12
Year	0	1	2	3
Cash flow stream	0	500	400	300
Discounting factor	1	1.12	1.2544	1.404928
Discounted cash flows project	0	446.4286	318.8776	213.5341
NPV = Sum of discounted cash flows
NPV Cash flow =	978.84
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor