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An Investment has the following cash flow series where interest is 8 percent.

End of Year---> 0,1,3,4,5,6,7,8

Cash Flow--> $300, $300, $600, -$500, -$300, $0, $800, $700, $600

A) Determine the present worth of the series.

B) Determine the future worth of the series at the end of year 8.

C) Find the worth of the series at the end of year 2.

Please show work. Not a chart from excell.

Respuesta :

TomShelby

Answer:

Present value:                         1711.49

At the end of year two:           1,273.92

At the end of the 8th year:      3167.86

Explanation:

We will use the value of present value of a lump sum on each cash flow, then add them all together for the present value.

Example for 6th Year

[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]  

Maturity  800.00

time  6.00

rate  0.08000

[tex]\frac{800}{(1 + 0.08)^{6} } = PV[/tex]  

PV   504.1357

Year  //  Cashflow //  Discounted cash flow

0 300  300

1 300  277.78

2 600   514.40

3 -500 -396.92

4 -300 -220.51

5 0               0

6 800  504.14

7 700          408.44

8 600  324.16

         1711.49

For future value, we will adjust using the future value of a lump sum:

Again, using the 6th year as example:

[tex]Principal \: (1+ r)^{time} = Amount[/tex]

Principal 800.00

time 2.00 (it capitalize trought 7th and 8th years)

rate 0.08000

[tex]800 \: (1+ 0.08)^{2} = Amount[/tex]

Amount 933.12

Year // Cashflow // Future value

0 300 555.28

1 300 514.15

2 600 952.12

3 -500 -734.66

4 -300 -408.15

5 0               0

6 800   933.12

7 700           756

8 600  600      

              3167.86

At the end of 2nd year:

Year // Cashflow // Future value

0 300   349.92

1 300   324

2 600  600      

     Total           1,273.92