Question

In: Finance

Consider the following cash flows: Year Cash Flow 2 $ 22,000 3 40,000 5 58,000 Assume...

Consider the following cash flows:

Year	Cash Flow
2		$	22,000
3			40,000
5			58,000

Assume an interest rate of 8.8 percent per year.

If today is Year 0, what is the future value of the cash flows five years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Future value ?

If today is Year 0, what is the future value of the cash flows ten years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Future value ?

Expert Solution

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 8.8%
Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 8.8% interest rate is $87,686.85.

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

PV= -87,686.85.

N= 5

I/Y= 8.8

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

The value obtained is 133,683.85.

Therefore, the future value of the cash flow is $133,683.85.

2.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 8.8%
Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 8.8% interest rate is $87,686.85.

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

PV= -87,686.85.

N= 10

I/Y= 8.8

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

The value obtained is 203,809.03.

Therefore, the future value of the cash flow is $203,809.03.

In case of any query, kindly comment on the solution.

jeff jeffy answered 1 year ago

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