Question

In: Finance

a. Find present value of the following cash flows at 3% rate: CF0 = -1000; CF1...

a. Find present value of the following cash flows at 3% rate: CF0 = -1000; CF1 = 300; CF2 = 560; CF3 = -90; CF4 = 250. b. What is the future value of these cash flows?

Solutions

Expert Solution

Discount rate 3.000%
Year 0 1 2 3 4
Cash flow stream -1000 300 560 -90 250
Discounting factor 1.000 1.030 1.061 1.093 1.126
Discounted cash flows project -1000.000 291.262 527.854 -82.363 222.122
NPV = Sum of discounted cash flows
NPV -41.13
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
compound rate 3.000%
Year 0 1 2 3 4
Cash flow stream -1000 300 560 -90 250
compounding factor 1.126 1.093 1.061 1.030 1.000
compounded cash flows project -1125.509 327.818 594.104 -92.700 250.000
FV = Sum of compounded cash flows
FV= -46.29
Where
compounding factor = (1 + compound rate)^(Corresponding period in years)
compounded Cashflow= Cash flow stream*compounding factor

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