Question

QEP Resources has a project with initial investment requiring $-55,000 and the following cash flows will be generated because of the project: $13,750; $55,000; $64,000; and $64,000 respectively at the end of each year for the next four years. If the required rate of return is 0.15, find the future value of these cash flows.

Answer 1

Required rate of Return(r) = 7%

Calculating the Future value of Cashflows:-

Future Value = Cash-Inflow in year-end 1(1+r)^3 + Cash-Inflow in year-end 2(1+r)^2 + Cash-Inflow in year-end 3(1+r)^1 + Cash-Inflow in year-end 4(1+r)^0

FV = 13,750(1+0.15)^3 + 55,000(1+0.15)^2 + 64,000(1+0.15)^1 + 64,000(1+0.15)^0

= 20912.03 + 72,737.5 + 73,600 + 64,000

= $231,249.53

So, Value at the cash flows are $231,249.53

Note- Initial cost does not form part of cash flows.

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