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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, 2025, 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

Compute the amount of future value as of December 31, 2025.

Explanation

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

Given:

n – 6 annual cash flows

i –Interest rate 9% compounded annually.

First cash flow starts on December 31, 2019, and December 31, 2024 is the last cash flow. Here, the cash flow occurs during the first day of each time period, hence it is an annuity due.

Compute the amount of future value of annuity due (Future value D) as of December 31, 2025.

Future valueD= Cash flow ×(fDn=6,i=9%)=Cash flow ×(fOn +1=7,i=9%1)=$50,000×(9

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