Question

A huge worldwide retailer has made cyber security changes to help prevent financial liabilities and identity theft. The changes are estimated to result in legal and customer service savings each year for 3 years. The company’s time value of money is 6% per year.

What is the future worth at year 3 if the annual savings are $12,000,000 per year?

Answer 1

FV of Annuity :
Annuity is series of cash flows that are deposited at regular intervals for specific period of time.

FV of Annuity = CF [ (1+r)^n - 1 ] / r
r - Int rate per period
n - No. of periods

Particulars	Amount
Cash Flow	$ 1,20,00,000.00
Int Rate	6.000%
Periods	3

FV of Annuity = Cash Flow * [ [ ( 1 + r ) ^ n ] - 1 ] /r
= $ 12000000 * [ [ ( 1 + 0.06 ) ^ 3 ] - 1 ] / 0.06
= $ 12000000 * [ [ ( 1.06 ) ^ 3 ] - 1 ] / 0.06
= $ 12000000 * [ [1.191] - 1 ] / 0.06
= $ 12000000 * [0.191] /0.06
= $ 38203200