Pharoah Inc., management is expecting a new project to start paying off, beginning at the end...

Pharoah Inc., management is expecting a new project to start paying off, beginning at the end of next year. Cash flows are expected to be as follows:

0	1	2	3	4	5


	$436,676	$474,452	$463,455	$465,326	$537,444

If Pharoah can reinvest these cash flows to earn a return of 7.2 percent, what is the future value of this cash flow stream at the end of 5 years? What is its present value?

Expert Solution

Ans Future Value : $ 2730042.69

FUTURE VALUE CASH OUTFLOWS
Year	Cash Flows	FV Factor	Formula	Terminal Value

1	436676	1.321	(1 + 7.2%)^(5-1)	5,76,684.75
2	474452	1.232	(1 + 7.2%)^(5-2)	5,84,489.40
3	463455	1.149	(1 + 7.2%)^(5-3)	5,32,595.07
4	465326	1.072	(1 + 7.2%)^(5-4)	4,98,829.47
5	537444	1.000	(1 + 7.2%)^(5-5)	5,37,444.00
		Total	27,30,042.69

Ans Present Value : $ 1928392.84

PRESENT VALUE
Year	Project Cash Flows (i)	DF@ 7.2%	DF@ 7.2% (ii)	PV of Project ( (i) * (ii) )

1	436676	1/((1+7.2%)^1)	0.932836	4,07,347.01
2	474452	1/((1+7.2%)^2)	0.870183	4,12,859.91
3	463455	1/((1+7.2%)^3)	0.811738	3,76,203.83
4	465326	1/((1+7.2%)^4)	0.757218	3,52,353.17
5	537444	1/((1+7.2%)^5)	0.706360	3,79,628.92
		pv	19,28,392.84

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