Question

Fuente, Inc., has identified an investment project with the following cash flows. Year 1 - $675 Year 2 - $900 Year 3 - $1,175 Year 4 - $1,300

a. If the discount rate is 9 percent, what is the future value of these cash flows in year 4?

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

c. What is the future value at discount rate of 28 percent?

Answer 1

Answer :

a). Statement showing computations @9% ( Assuming cashflow occur at the end of year )

year	cash flow	future value at end of year 4	working notes
1	675.00	874.14	675 *1.09 *1.09 *1.09
2	900.00	1,069.29	900 *1.09 *1.09
3	1,175.00	1,280.75	1,175 *1.09
4	1,300.00	1,300.00	1,300.00
	4,050.00	4,524.18

Future value of these cashflows at the end of year 4 is $4,524.18.

b). Statement showing computations @19% ( Assuming cashflow occur at the end of year )

year	cash flow	future value at end of year 4	working notes
1	675.00	1,137.48	675 *1.19 *1.19 *1.19
2	900.00	1,274.49	900 *1.19 *1.19
3	1,175.00	1,398.25	1,175 *1.19
4	1,300.00	1,300.00	1,300.00
	4,050.00	5,110.22

Future value of these cashflows at the end of year 4 is $5,110.22.

c). Statement showing computations @28% ( Assuming cashflow occur at the end of year )

year	cash flow	future value at end of year 4	working notes
1	675.00	1,415.58	675 *1.28 *1.28 *1.28
2	900.00	1,474.56	900 *1.28 *1.28
3	1,175.00	1,504.00	1,175 *1.28
4	1,300.00	1,300.00	1,300.00
	4,050.00	5,694.14

Future value of these cashflows at the end of year 4 is $5,694.14.