Question

For the following cash flows, (receipt of 10,000 at t=0; payment of 15,000 at t=2; receipt of 20,000 at t=3; and receipt of 20,000 at t=5), various interest rates are applied: 4% for years 1, 2 and 3; 5% for years 4 and 5, and 6% for years 6 and 7. Find the equivalent Net Value at t=7, i.e., F₇=?

		80507.089
		61182.292
		51805.343
		48462.201
		41857.496

Answer 1

Formula : Future Value = Present Value × (1+r)^t  

where: Future Value = net cash inflow - outflows expected during a particular period

r = discount rate or return that could be earned in alternative investments

t = number of time periods​

Cash Inflows and Outflows:

Reciepts t_{0 =} (10000(1+4%)) = 10400

Interest t₁ = (10400(1+4%)) = 10816

Payments(10400-15000(1+4%)) = -4,784

Reciepts t₂ = (10816-15600+20000(1+4%)) = 15824.64

Reciepts t₃ = (15824.64(1+4%)) = 16,457.62

Reciepts t₄ = (16,457.62(1+5%)) =17,280.50

t5 = (17,280.50+20000(1+5%)) = 39,144.52

t6 = (39,144.52(1+6%)) = 41,493.19

t7 = (41,493.19(1+6%)) = 41857.496