Consider the following uneven cash flow stream. What cash flow Today (Year 0), instead of the current $2,000, would be needed to accumulate $20,000 at the end of Year 5? (Assume that the interest rate remains 10% and the cash flows for Years 1 through 5 remain unchanged.) Show your work
Here are the financial statements for Aquidneck SNF, a non-profit entity:
Statement of Operations and Change in Net Assets as of December 31, 2018 (in $000’s)
Revenue:
Premiums Earned $26,682
Coinsurance 1,689
Interest & Other Income 242
Total Revenue $28,613
Expenses:
Salaries and benefits $15,154
Medical Supplies and drugs 7,507
Insurance 3,963
Provision for bad debts 19
Depreciation 367
Interest 385
Total Expenses $27,395
Net Income $ 1,218
Net Assets, Beginning of Year $ 900
Net Assets, End of Year $ 2,118
Balance Sheet as of December 31, 2018 ($ in 000’s)
Assets:
Cash & equivalents $2,737
Net premiums receivable 821
Supplies 387
Total Current Assets $3,945
Net Property and Equipment $5,924
Total Assets $9,869
Liabilities and Net Assets
Accounts payable – medical services $2,145
Accrued expenses 929
Notes payable 141
Current portion – long term debt 241
Total current liabilities $3,456
Long Term Debt $4,295
Total Liabilities $7,751
Net Assets (Equity) $2,118
Total Liabilities & Net Assets $9,869
Consider the following uneven cash flow stream: (Hint: Drawing a timeline may help.)
Year Cash Flow
Year 0 (Today) $2,000
Year 1 2,000
Year 2 0
Year 3 1,500
Year 4 2,500
Year 5 4,000
| Cash flow (year 0) needed to accumulate $20000 at the end of Year 5 | |||
| Present value of uneven cash flow | |||
| Year | Cash Flow | PV Factor | Present value |
| 0 | $2,000 | 1 | $2,000 |
| 1 | $2,000 | 0.90909 | $1,818 |
| 2 | 0 | 0.82645 | $0 |
| 3 | $1,500 | 0.75131 | $1,127 |
| 4 | $2,500 | 0.68301 | $1,708 |
| 5 | $4,000 | 0.62092 | $2,484 |
| Total | $9,136 | ||
| Present value of future cash flow of $20000 @10% | |||
| FV factor for $1 @ 10% at the end of year 5 | 1.61051 | ||
| Future Value | $20,000 | ||
| Present value (20000/12418.43) | $12,418 | ||
| Present value required | $12,418 | ||
| Present value of cash flow | $9,136 | ||
| Difference | $3,282 | ||
| Thus cash flow needed in Year 0 is $2000+$3282 = $5282 | |||
| Year | Cash Flow | PV Factor | Present value |
| 0 | $5,282 | 1 | $5,282 |
| 1 | $2,000 | 0.90909 | $1,818 |
| 2 | 0 | 0.82645 | $0 |
| 3 | $1,500 | 0.75131 | $1,127 |
| 4 | $2,500 | 0.68301 | $1,708 |
| 5 | $4,000 | 0.62092 | $2,484 |
| Total | $12,418 | ||
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