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x (w Announcements- x-D cH9.html Bing MyLUTEP C O ezto.mheducation.com/hm.tpx?-0.5505572531194124 1532925499026 Question 1 (of 20) value: 3.00 points P6-3 Future Value and Multiple Cash Flows [LO1] Paradise, Inc., has identified an investment project with the following cash flows. YearCash Flow $575 825 1,200 1,300 Required (a)lf the discount rate is 9 percent, what is the future value of these cash flows in year 4? Click to select) (b)What is the future value at a discount rate of 18 percent? (Click to select) (c)What is the future value at discount rate of 27 percent? [Click to select) References eBook & Resources Type here to search

Explanation / Answer

(a) Calculation of future value of given cashflow If discount rate is 9% -

Future value of given cash flows = 575*(1+0.09)^3 + 825*(1+0.09)^2 + 1200*(1+0.09)^1 + 1300*(1+.09)^0

= 575*1.296 + 825*1.188 + 1200*1.09 + 1300*1

= 744.64 + 980.18 + 1308 + 1300

= 4332.82

(b) Calculation of future value of given cashflow If discount rate is 18% -

Future value of given cash flows = 575*(1+0.18)^3 + 825*(1+0.18)^2 + 1200*(1+0.18)^1 + 1300*(1+.18)^0

= 575*1.64 + 825*1.3924 + 1200*1.18 + 1300*1

= 944.74 + 1148.73 + 1416 + 1300

= 4809.47

(c) Calculation of future value of given cashflow If discount rate is 27% -

Future value of given cash flows = 575*(1+0.27)^3 + 825*(1+0.27)^2 + 1200*(1+0.27)^1 + 1300*(1+.27)^0

= 575*2.04 + 825*1.613 + 1200*1.27 + 1300*1

= 1177.82 + 1330.64 + 1524 + 1300

= 5332.46

all figures are in $.

Please comment in case of any question.

Year Cash flow Holding period FV @ 9% 1 575 3.00 744.64 2 825 2.00 980.18 3 1200 1.00 1308.00 4 1300 0.00 1300.00 Total 4332.82

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