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To calculate: The
Introduction:
The future value of cash flow is the accumulated value including the interest after a specified period of time. It is utilized to take the effective decision at present or to assess the investment potentiality.
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Answer to Problem 3QP
The future value of cash flow of Company H at 8%, 11%, and 24% is $6,390.49, $6,632.94, and $7,785.55 respectively.
Explanation of Solution
Given information:
Company H has found a project of investment with cash flows which has a rate of discount of 8%, 11%, and 24%. The cash flow for year 1 is $1,075, for year 2 is $1,235, for year 3 is $1,510, and for year 4 is $1,965.
Formula to calculate the future value:
Note: PV denotes the
Compute the future value for 8%, 11%, and 24%:
Note:
- The future cash flow of each year is calculated and then it is added.
- $1,075 receives 3 years interest, $1,235 receives 2 years interest, and $1,510 receives 1-year interest and $1,965 receives no interest as it is the final year and r is 0.08 or 8%.
Hence, the future value at 8% is $6,390.49.
Compute the future value for 11%:
Note:
- The future cash flow of each year is calculated and then it is added.
- $1,075 receives 3 years interest, $1,235 receives 2 years interest, and $1,510 receives 1-year interest and $1,965 receives no interest as it is the final year and r is 0.11 or 11%.
Hence, the future value at 11% is $6,632.94.
Note:
- The future cash flow of each year is calculated and then it is added.
- $1,075 receives 3 years interest, $1,235 receives 2 years interest, and $1,510 receives 1-year interest and $1,965 receives no interest as it is the final year and r is 0.24 or 24%.
Hence, the future value at 24% is $7,785.55.
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ESSENTIAL OF CORP FINANCE W/CONNECT
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