Question

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

Year. Cash Flow
1 $675
2 925
3 1,075
4 1,475

a. If the discount rate is 9 percent, what is the future value of these cash flows in year 4?

b. What is the future value at a discount rate of 17 percent?

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

a.A=675*(1.09)^3+925*(1.09)^2+1075*(1.09)+1475

=$4619.89(Approx)

b.A=675*(1.17)^3+925*(1.17)^2+1075*(1.17)+1475

=$5080.07(Approx).