2 Fuente, Inc., has identified an investment project with the following cash flo

Question

2 Fuente, Inc., has identified an investment project with the following cash flows. Cash Flow $1,070 1,300 1,520 2,260 ar a. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the discount rate is 11 percent, what is the future value of these cash flows in Year 4? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. If the discount rate is 24 percent, what is the future value of these cash flows in Year 4? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. b. c. Future value at 8% | Future value at 11% Future value at 24%

Explanation / Answer

We will use the baisc TVM function for this question: FV = PV * (1 + r)n

When we want to calculate FV in year 4, cash flow in year 1 would be compounded for 3 years, cash flow in year 2 for 2 years, cash flow in year 3 for 1 year and cash flow in year 4 is already at its future value (no compounding).

a) Rate = 8%

FV = 1,070 * (1 + 8%)3 + 1,300 * (1 + 8%)2 + 1,520 * (1 + 8%)1 + 2,260

FV = $1,347.89 + $1,516.32 + $1,641.60 + $2,260 = $6,765.81

b) Rate = 11%

FV = 1,070 * (1 + 11%)3 + 1,300 * (1 + 11%)2 + 1,520 * (1 + 11%)1 + 2,260

FV = $1,463.37 + $1,601.73 + $1,687.20 + $2,260 = $7,012.30

c) Rate = 24%

FV = 1,070 * (1 + 24%)3 + 1,300 * (1 + 24%)2 + 1,520 * (1 + 24%)1 + 2,260

FV = $2,040.09 + $1,998.88 + $1,884.80 + $2,260 = $8,183.77

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