Question

In your finance courses, you learned concepts related to Present Value and Future Value. Starbucks' "Cash and Cash Equivalents" in 2021 was $6,455.7 million (page 43). Out of this cash amount if Starbucks decides to invest $455.7 million for 6 years at an interest rate of 5%, what would be the future value of $455.7 million?

Answer 1

To find Starbucks' future value of a $455.7 million investment after 6 years at an interest rate of 5%, use the compound interest formula. The calculated future value is approximately $610.45 million.

Step-by-step explanation:

To calculate the future value of a $455.7 million investment by Starbucks at an annual interest rate of 5% over 6 years, we use the formula for compound interest which is Future Value = Present Value * (1 + Interest Rate)^Number of Periods. Plugging in the numbers: Future Value = $455.7 million * (1 + 0.05)^6.

First, we calculate the growth factor (1 + 0.05)^6, which equals approximately 1.3401. Then, multiply the present value of $455.7 million by the growth factor to find the future value: $455.7 million * 1.3401 ≈ $610.45 million. Hence, the investment would grow to approximately $610.45 million after 6 years.