You have been offered the opportunity to invest in a project that will pay $4,155 per...

Free

70.2K

Verified Solution

Question

Finance

You have been offered the opportunity to invest in a projectthat will pay $4,155 per year at the end of years one through threeand $8,519 per year at the end of years four and five. These cashflows will be placed in a saving account that pays 18.89 percentper year. What is the future value of this cash flow pattern at theend of year five?

Answer & Explanation Solved by verified expert
4.5 Ratings (732 Votes)

Year Cash flow Future value of 1 Future value of cash flow
a b c=1.1889^(5-a) d=b*c
1 $       4,155                    1.99793 $                                8,301.42
2 $       4,155                    1.68049 $                                6,982.44
3 $       4,155                    1.41348 $                                5,873.02
4 $       8,519                    1.18890 $                              10,128.24
5 $       8,519                    1.00000 $                                8,519.00
Total $                              39,804.12
Working:
\"a\" denotes year in column \"c\".
For understanding future value of 1 in column \"c\":
Future value of cash flow of 1 of year 1 at the end of year 5 = 1.1889^(5-a)
= 1.1889^(5-1)
= 1.1889^4
=                                      1.99793
Similarly, future value of cash flows of all years are calculated.

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students