Question

wells, inc., has identified an investment project with the following cash flows. year cash flow 1 $ 1,010 2 1,240 3 1,460 4 2,200 a. if the discount rate is 7 percent, what is the future value of these cash flows in year 4? (do not round interme

Answer 1

To calculate the future value of the cash flows in year 4, we need to discount each cash flow back to year 4 using the discount rate of 7 percent.

Let's calculate the present value of each cash flow first:

Year 1 cash flow: $1,010 / (1 + 0.07)^3 = $1,010 / 1.225043 = $825.79 (rounded to 2 decimal places)
Year 2 cash flow: $1,240 / (1 + 0.07)^2 = $1,240 / 1.1449 = $1,082.55 (rounded to 2 decimal places)
Year 3 cash flow: $1,460 / (1 + 0.07)^1 = $1,460 / 1.07 = $1,364.49 (rounded to 2 decimal places)
Year 4 cash flow: $2,200

Now, we can calculate the future value of these discounted cash flows in year 4:

Future Value = Year 1 + Year 2 + Year 3 + Year 4
Future Value = $825.79 + $1,082.55 + $1,364.49 + $2,200
Future Value = $5,472.83

Therefore, the future value of these cash flows in year 4, with a discount rate of 7 percent, is $5,472.83.