Question

Cannonier, Inc., has identified an investment project with the following cash flows. Year Cash Flow 1 $ 1,040 2 1,270 3 1,490 4 2,230

a. If the discount rate is 9 percent, what is the future value of these cash flows in Year 4? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. What is the future value at a discount rate of 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c. What is the future value at a discount rate of 23 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

$6709.81

$6953.02

$7919.39

Step-by-step explanation:

To determine the future value, first determine the present value of the cash flows

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 = 1,040

Cash flow in year 2 = 1270

Cash flow in year 3 = 1490

Cash flow in year 4 = 2230

PV when I is 9%= 4753.40

PV when I is 12%= 4418.77

PV when I is 23%= 3459.96

The formula for calculating future value:

FV = P (1 + r)^nm

FV = Future value

P = Present value

R = interest rate

m = number of compounding

N = number of years

1. 4753.40(1.09)^4 = $6709.81

2. 4418.77(1.12)^4 = $6953.02

3. 3459.96(1.23)^4 = $7919.39

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute