Question

We want to save $120,000 now and $150,000 one year from now for possible replacement of the old computer. If the replacement will occur at the end of 5 years from now. How much will we have in the account, given the interest rate is 10% per year?

Your answer should include the cash flow diagram, the related factors, such as (P/F,i%,n), and the final answer. The calculation should be done manually and also by EXCEL. You may insert the image of the cash flow diagram and EXCEL cells into WORD.

Answer 1

Solution:

Based on the given information let us first see how to manually calculate the answer:

Future value = Present Value* (1 + Interest Rate)^Years

Using the above formula we can manually calculate the amount in our account.

Now let us look into how the cash flow diagram (we will use the table to show cashflow at each year, which is equivalent of a diagram) and the values look like. Please find below table generated using the above formula and excel:

Year	Amount	Future Value
Now	120,000	193,261
One year from Now	150,000	241,577
Two year from Now	-	-
Three year from Now	-	-
Four year from Now	-	-
Five year from Now	-	-
Total	270,000	434,838

Hence, after five years the amount in the account will be $434,838.