Question

Fuente, 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. If the discount rate is 12 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.)
c. If the discount rate is 23 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.)

Answer 1

a. $6709.81

b. $6953.02

c. $7919.39

Step-by-step explanation:

To determine the future value of the cash flows, the first step is to 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 = 1,270

Cash flow in year 3 = 1,490

Cash flow in year 4 = 2,230

PV when interest rate is 9% = 4753.40

PV when interest rate is 12% = 4418.77

PV when interest rate is 23% = 3459.96

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

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 x (1.09^4) = $6709.81

2. 4418.77 x (1.12^4) = $6953.02

3. 3459.96 x x (1.23^4) = $7919.39