Question

Fuente, Inc., has identified an investment project with the following cash flows.

Year	Cash Flow
1	$575
2	975
3	1,075
4	1,400

a.	If the discount rate is 9 percent, what is the future value of these cash flows in year 4?

      

b.	What is the future value at a discount rate of 17 percent?

      

c.	What is the future value at discount rate of 28 percent?

      

Answer 1

I thing to note that, these cashflows happening at the end of the year. So, Year1 cashflow will get interest for 3 years and Year4 cashflow will not get any interest on it.

a. Future value has to be found using the Formula=(575*(1+9%)^3)+(975*(1+9%)^2)+(1075*(1+9%))+1400=744.64+1158.40+1171.75+1400=$4474.79

b. Future value=(575*(1+17%)^3)+(975*(1+17%)^2)+(1075*(1+17%))+1400=920.93+1334.68+1257.75+1400=$4913.35

c. Future value=(575*(1+28%)^3)+(975*(1+28%)^2)+(1075*(1+28%))+1400=1205.86+1597.44+1376.0+1400=$5579.30