Question

Fuente, Inc., has identified an investment project with the following cash flows. Year Cash Flow 1 $1,030 2 1,260 3 1,480 4 2,220 a. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4?b. If the discount rate is 11 percent, what is the future value of these cash flows in Year 4?c. If the discount rate is 24 percent, what is the future value of these cash flows in Year 4?

Answer 1

Answer:

a. If the discount rate is 8 percent, the future value of these cash flows in Year 4 will be $6,586

b. If the discount rate is 11 percent, what is the future value of these cash flows in Year 4 will be $6,824.

c. If the discount rate is 24 percent, what is the future value of these cash flows in Year 4 will be $7,956.

Explanation:

Cash Flow

Year 1: $1,030

Year 2: $1,260

Year 3: $1,480

Year 4: $2,220

a. If the discount rate is 8 percent, the future value of these cash flows in Year 4

Future Value = (1030 X 1.08^3)+(1260 X 1.08^2)+(1480 X 1.08)+(2220)

Future Value = 1298 + 1470 + 1598 + 2220 = $6,586

b. If the discount rate is 11 percent, what is the future value of these cash flows in Year 4

Future Value = (1030 X 1.11^3)+(1260 X 1.11^2)+(1480 X 1.11)+(2220)

Future Value = 1409 + 1552 + 1643 + 2220 = $6,824

c. If the discount rate is 24 percent, what is the future value of these cash flows in Year 4

Future Value = (1030 X 1.24^3)+(1260 X 1.24^2)+(1480 X 1.24)+(2220)

Future Value = 1964 + 1937 + 1835 + 2220 = $7,956