Problem 6-3 Future Value and Multiple Cash Flows [LO1] Cannonier, Inc., has iden

Question

Problem 6-3 Future Value and Multiple Cash Flows [LO1] Cannonier, Inc., has identified an investment project with the following cash flows. Year Cash Flow 1 $ 1,100 2 1,330 3 1,550 4 2,290 If the discount rate is 6 percent, what is the future value of these cash flows in Year 4? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value $ What is the future value at a discount rate of 14 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value $ What is the future value at a discount rate of 21 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Future value $

Explanation / Answer

Answer: If the discount rate is 6 percent, The future value of these cash flows in Year 4:

To solve this problem, we must find the FV of each cash flow and add them. To find the FV of a lump sum, we use:

FV = PV(1 +r)t

FV@6% = $1100 (1.06)3+ $1330 (1.06)2+ $1,550(1.06) + $2290

=$6737.51

Answer:The future value at a discount rate of 14 percent:

FV = PV(1 +r)t

FV@14% = $1100 (1.14)3+ $1330 (1.14)2+ $1,550(1.14) + $2290

=$7415.17

Answer:The future value at a discount rate of 21 percent:

FV = PV(1 +r)t

FV@21% = $1100 (1.21)3+ $1330 (1.21)2+ $1,550(1.21) + $2290

=$8061.47

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