Question

Find the future value at the end of year 3 of the following stream of cash flows received at the end of each year, assuming the firm can earn 17 percent on its investments. A. $16,320 B. $20,127 C. $23,548 D. $27,551

Answer 1

To find the future value at the end of year 3, calculate the present value of each cash flow and add them together. The future value is $50.2 million.

Step-by-step explanation:

To find the future value at the end of year 3, we need to calculate the present value of each cash flow and then add them together. The formula for calculating the present value is Future Value / (1 + Interest Rate)^n, where n is the number of years. Using this formula, we can calculate the present value of each cash flow as follows:

1. $15 million
2. $20 million / (1 + 0.17)^1 = $17.1 million
3. $25 million / (1 + 0.17)^2 = $18.1 million

Adding up these present values, we get $15 million + $17.1 million + $18.1 million = $50.2 million.

Therefore, the future value at the end of year 3 is $50.2 million.