Question

Assume we receive $1200 at the end of each year for 6 years. What is the equivalent value of the cash flows at time period 0 assuming 5% interest? What is the equivalent value at the end of time period 6 assuming 5% interest?

Answer 1

Req A. Present value of amount received at Year-0 is $6091

The explanation is as follows:

Year	Cash inflows	PVF @ 5%	Present value
1	1200	0.952381	1142.857
2	1200	0.907029	1088.435
3	1200	0.863838	1036.605
4	1200	0.822702	987.243
5	1200	0.783526	940.2314
6	1200	0.746215	895.4585
Present value of cash inflows			6091

Req B: The future value of amount received at Year 6 is $8162

The explanation is as follows:

Year	Cash inflows	FVF @ 5%	Future value
1	1200	1.276282	1531.538
2	1200	1.215506	1458.608
3	1200	1.157625	1389.15
4	1200	1.1025	1323
5	1200	1.05	1260
6	1200	1	1200
Fture value of cash inflow at Year -6			8162