Question

What is the future value (in $) of cash flows 1-3 at the end of year 3, assuming a 6% interest rate (compounded annually)?

End of year	Cash flow
1	$600
2	871
3	800
4	3,500
5	1,250
6	4,530
7	2,350

Answer 1

The question is solved by first calculating the present value.

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= $0. Since there is no initial cash flow for this question.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the interest rate of 6%
• Press the down arrow and CPT buttons to get the net present value.  

Net Present value of cash flows at 6% interest rate is $2,012.92.

Enter the below in a financial calculator to compute the future value:

PV= -2,012.92

N= 3

I/Y= 6

Press the CPT key and FV to compute the future value.

The value obtained is 2,397.42.

Therefore, the future value of the cash flow at the end of year 3 is $2,397.42.