To discuss: The method for calculating the
Introduction:
The future value of cash flow is the accumulated value including interest after a specified period. It is utilized to take effective decision at present or to assess the investment potentiality.
Explanation of Solution
The future cash flow value can be obtained using a formula, which is as follows:
PV is the present value, r is the rate of interest, and t is the number of years. The computation of series of cash flow in the future is shown in an example.
Example, if a person deposits $100 in a year, and $200 in two years, and $300 in three years with an interest rate of 7%, then calculate the future amount after three years. Note that $100 receives 2 years interest, $200 receives 1-year interest, and $300 receives no interest as it is the final year
Calculate the future cash flow for each amount:
Calculate the total future cash flow for three years:
Hence, the total future cash flow for three years is $628.49.
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Chapter 5 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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