Question

2. Cannon Inc. has identified an investment project with the following cash flows. If the discount rate is 8%, what is the future value of these cash flows in year 4? If the discount rate is 11%, what is the future value in year 4? Show your work.

Year	Cash Flow
1	$1,225
2	$1,345
3	$1,460
4	$1,590

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

Answer Part 1) Discount Rate = 8 % Future value of Cash Flows = (1225*(1.08)^3)+(1345*(1.08)^2)+(1460*1.08)+1590 = 1543.15 + 1568.81+1576.8+1590 = $ 6287.76 Thus the correct answer future value with 8% discount rate = $ 6287.76 Note it has been assumed that cash flows occurs at the year end 3 Part 2) Discount Rate = 11 % 5 Future value of Cash Flows - = (1225"(1.11)^3)+(1345*(1.11)^2)+(1460*1.11)+1590 3 = 1675.35+1657.17+1620.6+1590 = $6543.12 Thus the correct answer future value with 11% discount rate = $ 6543.12 3 Note it has been assumed that cash flows occurs at the year end 1 ... Sheet78 Sheet79 Sheet30 Sheet81 Sheet82 Sheet33 Shee