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Question #13: You are presented with the following cash flows: • Year 1 – Cash flow...

Question #13: You are presented with the following cash flows:

• Year 1 – Cash flow of $150

• Year 2 and 3 – Cash flow of $325 each year

• Year 4 and 5 – Cash flow of $720 each year

Required: If the Required Rate of Return is 11%

a) What is the value of the Cash Flows at the end of Year 5?

b) What is the value of the Cash Flows today?

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Answer #1
Answer:
a) Calculation of value of cash flows at the end of year 5 Calculation of value of cash flows today
Year Cash flows Future value factor @11% Future value Year Cash flows Present value factor @11% Present value
1 150 1.5181 227.71 1 150 0.9009 135.14
2 325 1.3676 444.48 2 325 0.8116 263.78
3 325 1.2321 400.43 3 325 0.7312 237.64
4 720 1.1100 799.20 4 720 0.6587 474.29
5 720 1.0000 720.00 5 720 0.5935 427.28
Total 2591.82 Total 1538.12
Cash flows value at the end of year 5 is $2,591.82 (Answer) Cash flows value today is 1,538.12 (Answer)
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