Question

Example :

Project A Project B

year 1 6000 2000

Year 2 0 3000

Year 3 2500 3000

Year 4 2500 3000

(a) If the discount rate is 8%, what is the present value of project A?

(b) If the discount rate is 8%, what is the future value of project A in year 4?

No financial calculator, could you please provide normal formula calculate with details？

Answer 1

Answer

Year	Project A	Project B
1	6000	2000
2	0	3000
3	2500	3000
4	2500	3000

r=8%

Present value = P/(1+r)ⁿ

P= principal amount or cash flow

r= Rate if interest ir discount rate

n= Number of years

PV= p/(1+r)ⁿ

Pv= 6000/(1+0.8)+0+2500+(1+0.8)³+2500+(1+0.8)⁴

=5555.5+0+1984.5+1837.5

=9377.5

Future value = pv*(1+r)ⁿ

Pv = present value   

r= Discount rate

n= Number of years

Pv= 9377.5

r= 8%

n= 4

FV= Pv*(1+r)ⁿ

^{=9377.5*(1+0. 8)4}

^{=9377.5*1.3604}

^=12757.15