Trigen Corp. management will invest cash flows of $1,147,960, $698,923, $769,024

Question

Trigen Corp. management will invest cash flows of $1,147,960, $698,923, $769,024, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 8.95 percent, what is the future value of these investment cash flows six years from today?

You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. A large networking company wants to incorporate your software into their systems and is offering to pay you $486,000 today, plus $486,000 at the end of each of the following six years for permission to do this. If the appropriate interest rate is 8 percent, what is the present value of the cash flow stream that the company is offering you?

Explanation / Answer

Hi,

Please find the answers as follows:

Part 1:

Future Value = 1147960*(1+.0895)^6 + 698923*(1+.0895)^5 + 769024*(1+.0895)^4 + 818400*(1+.0895)^3 + 1239400*(1+.0895)^2 + 1617848*(1+.0895)^1 = 8368636.03 or 8368636

Part 2:

Present Value = 486000 + 486000/(1+.08)^1+ 486000/(1+.08)^2 + 486000/(1+.08)^3 + 486000/(1+.08)^4 + 486000/(1+.08)^5 + 486000/(1+.08)^6 = 2732719.52 or 2732720

Thanks.

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