Carla Vista Inc., management is expecting a new project to start paying off, beginning at the...

Carla Vista Inc., management is expecting a new project to start paying off, beginning at the end of next year. Cash flows are expected to be as follows:

0	1	2	3	4	5


	$421,676	$469,452	$482,455	$465,326	$527,444

If Carla Vista can reinvest these cash flows to earn a return of 7.9 percent, what is the future value of this cash flow stream at the end of 5 years? What is its present value? (Round answers to 2 decimal places, e.g. 52.75.)

Expert Solution

a.	Future value of cash flows			$ 27,52,521.51

	Working;

	Year	Cash flow	Future value of 1	Future value of cash flow
	a	b	c=1.079^(5-a)	d=b*c
	1	$ 4,21,676	1.3555	$ 5,71,563.73
	2	$ 4,69,452	1.2562	$ 5,89,733.13
	3	$ 4,82,455	1.1642	$ 5,61,693.89
	4	$ 4,65,326	1.0790	$ 5,02,086.75
	5	$ 5,27,444	1.0000	$ 5,27,444.00

		Total		$ 27,52,521.51

b.	Present value of cash flows			$ 18,82,016.81

	Working;

	Year	Cash flow	Present value of 1	Present value of cash flow
	a	b	c=1.079^-a	d=b*c
	1	$ 4,21,676	0.9268	$ 3,90,802.59
	2	$ 4,69,452	0.8589	$ 4,03,225.79
	3	$ 4,82,455	0.7960	$ 3,84,054.16
	4	$ 4,65,326	0.7378	$ 3,43,298.21
	5	$ 5,27,444	0.6837	$ 3,60,636.05

		Total		$ 18,82,016.81

jeff jeffy answered 2 years ago

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