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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What is the future value on December 31, 2024, of 6 annual cash flows of $50,000 with the first cash flow being made on December 31, 2019, and interest at 9% compounded annually?

To determine

Determine the future value as on December 31, 2024.

Explanation

Future Value: The future value is value of present amount compounded at an interest rate until a particular future date.

6 annual cash flows = n

$50,000 Cash flow = C

Interest rate 9% compounded annually = i

First cash flow starts on December 31, 2019, and the 6th cash flow falls on December 31, 2024. Now, it is required to calculate the future value on December 31, 2024. Here, the cash flow occurs during the last day of each time period, hence it is an ordinary annuity.

Determine the future value ordinary annuity.

Future valueO= Cash flow ×(fOn=6,i=9%<

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