Question

Shane Matthews has invested in an investment that will pay him 6,200,6,450, 7,225, and7,500 over the next four years. If his opportunity cost is 10 percent, what is the future value of the cash flows he will receive?

Answer 1

The question addresses computing the future value of a series of cash flows, given a 10 percent opportunity cost. The method involves adjusting each cash flow to reflect its value at the end of the investment period and summing them.

Step-by-step explanation:

The question concerns the calculation of the future value of a series of cash flows received over several years, considering an opportunity cost of 10 percent. This is a financial concept that involves understanding the time value of money, where a dollar today is worth more than a dollar in the future due to its potential earning capacity. To calculate the future value of Shane Matthews' investment, we would normally use the formula:

Future Value = Cash Flow × (1 + Interest rate)number of years t

However, since the payments are received at different times, we cannot simply add up the cash flows. We would need to calculate the future value for each payment at the end of the fourth year and then sum those values up.