Question

Oriole, Inc., management expects the company to earn cash flows of $11,800, $14,000, $18,200, and $19,000 over the next four years. If the company uses an 10 percent discount rate, what is the future value of these cash flows at the end of year 4? (Round answer to 2 decimal places, e.g. 15.25. Do not round factor values.)

Answer 1

Future Value of Cash Flows = $71,665.80

Step-by-step explanation:

Cash Flows:

Year 1 = $11,800

Year 2 = $14,000

Year 3 = $18,200

Year 4 = $19,000

Discount Rate = 10%

Future Value of Cash Flows = $11,800 × 1.10^3 + $14,000 × 1.10^2 + $18,200 × 1.10^1 + $19,000 × 1.10^0

Future Value of Cash Flows = $11,800 × 1.331 + $14,000 × 1.21 + $18,200 × 1.10 + $19,000 × 1

Future Value of Cash Flows = $15,705.8 + $16,940 + $20,020 + $19,000

Future Value of Cash Flows = $71,665.80

So, the future value of these cash flows at the end of year 4 is $71,665.80

Answer 2

The future value of these cash flows at the end of year 4 is $71,885.80

Step-by-step explanation:

In order to calculate the future value of these cash flows at the end of year 4 we would have to use the following formula:

n

∑

FV = i=1 [CFi * (1 + r)(n - i)]

FV = [$11,800 * (1 + 0.10)∧(4-1)] + [$14,000 * (1 + 0.10)∧(4-2)] + [$18,200 * (1 + 0.10)(4-3)] + [$19,000 * (1 + 0.10)(4-4)]

FV = $15,705.80 + $16,940 + $20,020 + $19,000

FV=$71,665.80

The future value of these cash flows at the end of year 4 is $71,885.80