Find the present value of the following stream of cash flows, assuming that the firm's opportunity...

Find the present value of the following stream of cash flows, assuming that the firm's opportunity cost is 12 percent. What would be the future value of those cash flows?

Year Amount

1 $10,000

2 35,000

3 24,000

4 53,000

Solutions

Expert Solution

Present Value, PV =

and

Future Value, FV =

where C is cash flow

r is the rate of interest or opportunity cost = 12% or 0.12

t is no. of years from present till the required year

Year = t	C	PV calculation	PV
1	10000	10000/(1+0.12)^1	8928.5714
2	35000	35000/(1+0.12)^2	27901.7857
3	24000	24000/(1+0.12)^3	17082.7259
4	53000	53000/(1+0.12)^4	33682.4582
		sum=	87595.54

therefore, the present value of each cash flow is shown in the table above

and the present value of all the cash flows = sum of present values of all cash flows = 87595.54

future value when last cash flow is received,

Year	t	C	FV calculation	FV
1	3	10000	10000*(1+0.12)^3	14049.28
2	2	35000	35000*(1+0.12)^2	43904.00
3	1	24000	24000*(1+0.12)^1	26880.00
4	0	53000	53000*(1+0.12)^0	53000.00
			sum=	137833.28

therefore, the future value of each cash flow is shown in the table above

and the future value of all cash flows = sum of all future values of all cashflows = 137833.28

jeff jeffy answered 1 year ago

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