Booker, Inc., has identified an investment project with the following cash flows
ID: 2812878 • Letter: B
Question
Booker, Inc., has identified an investment project with the following cash flows.
If the discount rate is 7 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.)
Future value $
What is the future value at an interest rate of 13 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Future value $
What is the future value at an interest rate of 22 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Future value $
Explanation / Answer
a)
Future value of year 1 cash flow = 1,050 ( 1 + 0.07)3 = $1,286.295
Future value of year 2 cash flow = 1,280 ( 1 + 0.07)2 = $1,465.472
Future value of year 3 cash flow = 1,500 ( 1 + 0.07)1 = 1,605
Future value of year 4 cash flow = 2,240 ( 1 + 0.07)0 = 2,240
Future value of cash flows = 2,240 + 1,605 + 1,465.472 + 1,286.295
Future value of cash flows = $6,596.77
b)
Future value of year 1 cash flow = 1,050 ( 1 + 0.13)3 = $1,515.042
Future value of year 2 cash flow = 1,280 ( 1 + 0.13)2 = $1,634.432
Future value of year 3 cash flow = 1,500 ( 1 + 0.13)1 = 1,695
Future value of year 4 cash flow = 2,240 ( 1 + 0.13)0 = 2,240
Future value of cash flows = 2,240 + 1,695 + 1,634.432 + 1,515.042
Future value of cash flows = $7,084.47
c)
Future value of year 1 cash flow = 1,050 ( 1 + 0.22)3 = $1,906.64
Future value of year 2 cash flow = 1,280 ( 1 + 0.22)2 = $1,905.152
Future value of year 3 cash flow = 1,500 ( 1 + 0.22)1 = 1,830
Future value of year 4 cash flow = 2,240 ( 1 + 0.22)0 = 2,240
Future value of cash flows = 2,240 + 1,830 + 1,905.152 + 1,906.64
Future value of cash flows = $7,881.79
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