Question

Paradise, Inc., has identified an investment project with the following cash flows.

Year	Cash Flow
1	$525
2	950
3	1,050
4	1,275

Required:
(a)	If the discount rate is 10 percent, what is the future value of these cash flows in year 4?

        (Click to select)  3,800.00  4,052.49  4,329.00  384.00  4,278.28

(b)	What is the future value at a discount rate of 19 percent?

        (Click to select)  3,800.00  4,279.74  5,657.86  4,279.76  4,754.50

(c)	What is the future value at discount rate of 29 percent?

        (Click to select)  6,885.25  5,276.48  3,800.00  5,337.41  5,398.93

Answer 1

Sol:

a)

Year	Cash Flows	FV factor @10%	Future value
1	$525	1.331	$698.78
2	$950	1.21	$1,149.50
3	$1,050	1.1	$1,155.00
4	$1,275	1	$1,275.00
Future value Total	$4,278.28

Future value will be $4,278.28

b)

Year	Cash Flows	FV factor @19%	Future value
1	$525	1.685159	$884.71
2	$950	1.4161	$1,345.30
3	$1,050	1.19	$1,249.50
4	$1,275	1	$1,275.00
Future value Total	$4,754.50

Future value will be $4,754.50

c)

Year	Cash Flows	FV factor @29%	Future value
1	$525	2.146689	$1,127.01
2	$950	1.6641	$1,580.90
3	$1,050	1.29	$1,354.50
4	$1,275	1	$1,275.00
Future value Total	$5,337.41

Future value will be $5,337.41

Workings