Question

Different cash flow.  Given the following cash inflow at the end of each​ year, what is the future value of this cash flow at 4 %​, 8 %​, and 17​% interest rates at the end of year​ 7? Year​ 1: ​$12,000 Year​ 2: ​$22,000 Year​ 3: ​$30,000 Years 4 through​ 6: ​$0 Year​ 7: ​$150,000

Future value. A speculator has purchased land along the southern Oregon coast. He has taken a loan with the​ end-of-year payments of $8,000 for 8 years. The loan rate is 5​%. At the end of 8 ​years, he believes that he can sell the land for $60,000. If he is correct on the future​ price, did he make a wise​ investment?

Answer 1

future value of cashflows @4% at the end of 7 year ,required equation will be

=12000(1.04)^6 +22000(1.04)^5 +30000(1.04)^4 + 150000

=227045.94

future value of cashflow @8% at the end of 7 year

= 1200091.08)^6 +22000(1.08)^5 +30000(1.08)^4 + 150000

=242182.3784

future value of cashflows@17% at the end of 7 year

= 12000(1.17)^6 + 22000(1.17)^5 +30000(1.17)^4 +150000

=285232.4435

(b) as he take the loan with the end year payments the present value of the of the stream @5% will be

=8000*(1-(1.05)^-8/0.05)

=51705.70 this is the loan amount for the land and he sold the land for 60000 after 8 years this is not a wise investment as we find the future value of the loans amount after 8 years and it will be 51705.70(1.05)^8=76392.86 but he sold the land for 60000