Question

Troy will receive $7,500 at the end of Year 2. At the end of the following two years, he will receive $9,000 and $12,500, respectively. What is the future value of these cash flows at the end of Year 6 if the interest rate is 8 percent? Multiple Choice a. $38,418.80 b. $32,907.67 c. $36,121.08 d. $39,010.77

Answer 1

Answer:

The correct option is C,$36,121.08

Explanation:

The future value of these cash flows is computed by applying future value formula to each of the cash flow;

FV=PV*(1+r)^n

PV=Present value

r=rate =8%

n=number of years.

It is noteworthy that cash flows received at the end of year 2 can only be invested for 4 years,the one received in year 3 can be only invested for 3 years and  2 years for the one receivable at the end of year 4.

Find detailed computation in attached spreadsheet,note that years 0 to 1 have cash flows they are left blank