Question

What is the future value of the following cash flows if I can earn 5% per year:

T                      CF

0                      -5 million

1                      2 million

2                      2 million

3                      2 million

4                      2 million

5                      0

6                      0

7                      -3 million

8                      -3 million

9                      0

10                    10 million

11                    8 million

Answer 1

The question is solved by first calculating the present value.

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$5 million. Indicate the initial cash flow by a negative sign since it is a cash outflow.  
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the interest rate of 5%
• Press the down arrow and CPT buttons to get the net present value.  

Net Present value of cash flows at 5% interest rate is $8.7459 million.

Enter the below in a financial calculator to compute the future value:

PV= -8.7459 million

N= 11

I/Y= 5

Press the CPT key and FV to compute the future value.

The value obtained is 14.9585.

Therefore, the future value of the cash flow is $14.96 million.