Question

Some of the following future cash flows have been expressed in then-current (future) dollars and others in CV dollars. Use an interest rate of 10% per year and an inflation rate of 6%. Find the present worth with all cash flows expressed in future dollars.
Year Cash flow, $ Expressed as
0 17,100 CV
3 46,500 Then-current
4 12,300 Then-current
7 26,900 CV
The present worth with all cash flows expressed in future dollars is $_______.

Answer 1

Answer:

$62,267.91

Explanation:

first we must calculate the interest rate = 10% + 6% + (10% x 6%) = 16.6%

now we can use the present value formula:

present value = future value / (1 + rate)ⁿ

present values for:

• cash flow year 0 = $17,100
• cash flow year 3 = $46,500/1.166³ = $29,333.06
• cash flow year 4 = $12,300/1.166⁴ = $6,654.43
• cash flow year 7 = $26,900/1.166⁷ = $9,180.42

total present value = $62,267.91

Answer 2

Answer:

The present worth with all cash flows expressed in future dollars is $62267.91