Question

Find the future value of the following cash flows if the discount rate is 5.875%: Years 1 - 7 15,000 Years 8– 12 25,000 Years 13 - 20 4300

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Hence

A=$15000*(1.05875)^19+$15000*(1.05875)^18+$15000*(1.05875)^17+...........+$15000*(1.05875)^13+25000*(1.05875)^12+25000*(1.05875)^11+25000*(1.05875)^10+25000*(1.05875)^9+25000*(1.05875)^8+4300*(1.05875)^7+4300*(1.05875)^6+..............+4300*(1.05875)^1+4300

=$15000*[(1.05875)^19+(1.05875)^18+..........+(1.05875)^13]+25000*[(1.05875)^12+(1.05875)^11+(1.05875)^10+(1.05875)^9+(1.05875)^8]+4300*[(1.05875)^7+(1.05875)^6+..............+(1.05875)^1+1]

=(15000*17.56385491)+(25000*8.878072157)+(4300*9.853169123)

=$527,778.25(Approx).