Find the following values for a single cash flow: a) The future value of $500 in

ID: 1179854 • Letter: F

Question

Find the following values for a single cash flow:

a) The future value of $500 invested at 8 percent for one year

b) the future value of $500 invested at 8 percent for five years

c) the present value of $500 to be received in one year when the opportunity cost rate is 8 percent

year cashflow

0 0

1 250

2 400

3 500

4 600

5 600

a) what is the net present value if the opportunity cost of capital (discount rate) is 10 percent?

b) add an outflow (or cost) of $1000 at year 0 . Now, what is the net present value?

Explanation / Answer

a) The future value of $500 invested at 8 percent for one year

500*1.08 = 540

b) the future value of $500 invested at 8 percent for five years

500*1.08^5 = 735

c. The present value of $500 to be received in one year when the opportunity cost rate is 8 percent.

500/1.08 = 463

a) what is the net present value if the opportunity cost of capital (discount rate) is 10 percent?

Cash flow

PVIF

250

0.909091

227.2727

400

0.826446

330.5785

500

0.751315

375.6574

600

0.683013

409.8081

600

0.620921

372.5528

1716

b. Add an outflow (or cost) of $1,000 at year 0.Now, what is the net present value?

1716-1000 = 716