Question

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.)

Answer 1

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