Cannonier, Inc., has identified an investment project with the following cash flows.

Cannonier, Inc., has identified an investment project with the following cash flows.

 

Year	Cash Flow
1		$	930
2			1,160
3			1,380
4			2,120

If the discount rate is 7 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 13 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 22 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Future value

$

 

Explanation:

The time line is:
 

0	1	2	3	4
FV	$930	$1,160	$1,380	$2,120

 

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

FV = PV(1 + r)t

FV@7% = $930(1.07)3 + $1,160(1.07)2 + $1,380(1.07) + $2,120 = $6,063.97

FV@13% = $930(1.13)3 + $1,160(1.13)2 + $1,380(1.13) + $2,120 = $6,502.50

FV@22% = $930(1.22)3 + $1,160(1.22)2 + $1,380(1.22) + $2,120 = $7,218.88

Notice, since we are finding the value at Year 4, the cash flow at Year 4 is added to the FV of the other cash flows. In other words, we do not need to compound this cash flow.

 

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

CFo	$0	CFo	$0	CFo	$0
C01	$930	C01	$930	C01	$930
F01	1	F01	1	F01	1
C02	$1,160	C02	$1,160	C02	$1,160
F02	1	F02	1	F02	1
C03	$1,380	C03	$1,380	C03	$1,380
F03	1	F03	1	F03	1
C04	$2,120	C04	$2,120	C04	$2,120
F04	1	F04	1	F04	1
I = 7		I = 13		I = 22
NFV CPT		NFV CPT		NFV CPT
$6,063.97		$6,502.50		$7,218.88