Question

Suppose you are looking at the following possible cash flows: Year 1 CF = $500; Year...

  1. Suppose you are looking at the following possible cash flows:

Year 1 CF = $500;

Year 2 CF = $300;

Year 3 CF = $200;

Year 4 CF = $600;

The required discount rate is 5%.

  1. What is the value of the cash flows today?
  2. What is the value of the cash flows at the end of year 3?
  3. What is the value of the cash flows at the end of year 5?
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Homework Answers

Answer #1

The value of the cash flow today is computed as shown below:

Present value = Future value / (1 + r)n

= $ 500 / 1.05 + $ 300 / 1.052 + $ 200 / 1.053 + $ 600 / 1.054

= $ 1,414.688324

value at the end of year 3 is computed as follows:

= $ 1,414.688324 x 1.053

= $ 1,637.678571

value at the end of year 5 is computed as follows:

= $ 1,414.688324 x 1.055

= $ 1,805.540625

Feel free to ask in case of any query relating to this question      

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