Question

A company is expected to generate the following cash inflows:

Year 1: $10,000

Year 5: $25,000

Year 7: $20,000

What is the value of these cash flows in year 10 if the interest rate is 13%?

Answer 1

Cashflows are coming at Year 1 , 5 and 7. These cash flow will grow at 13% interest rate till year 10. Total cash flow at year 10 will be summation of these three cashflow in year 10.

Cash Flow in Year 1 (CF1) = $ 10,000	Time Period ( N1) = 10 Years - 1 year= 9 Years
Cash Flow in Year 5 (CF5) = $ 25,000	Time Period ( N5) = 10 Years - 5 years= 5 Years
Cash Flow in Year 7 (CF7) = $ 20,000	Time Period ( N7) = 10 Years - 7 year= 3 Years
Interest Rate ( R ) = 13%
Cash flow in Year 10 = CF1 * (1+R%)^N1 + CF5 * (1+R%)^N5 +    CF7 * (1+R%)^N7
Cash flow in Year 10 = $ 10,000 * (1+13%)^9 + $ 25,000 * (1+13%)^5 +    $ 20,000 * (1+13%)^7
Cash flow in Year 10 = $ 10,000 * (1.13)^9 + $ 25,000 * (1.13)^5 +    $ 20,000 * (1.13)^7
Cash flow in Year 10 = ($ 10,000 * 3.0040 ) + ($ 25,000 * 1.8424) +   ($ 20,000 * (1.4429)
Cash flow in Year 10 = $ 30,040.42 + $ 46,060.88 +   $ 28,857.94
Cash flow in Year 10 = $ 104,959.24