Answer:
a. If the discount rate is 8 percent, the future value of these cash flows in Year 4 will be $6,586
b. If the discount rate is 11 percent, what is the future value of these cash flows in Year 4 will be $6,824.
c. If the discount rate is 24 percent, what is the future value of these cash flows in Year 4 will be $7,956.
Explanation:
Cash Flow
Year 1: $1,030
Year 2: $1,260
Year 3: $1,480
Year 4: $2,220
a. If the discount rate is 8 percent, the future value of these cash flows in Year 4
Future Value = (1030 X 1.08^3)+(1260 X 1.08^2)+(1480 X 1.08)+(2220)
Future Value = 1298 + 1470 + 1598 + 2220 = $6,586
b. If the discount rate is 11 percent, what is the future value of these cash flows in Year 4
Future Value = (1030 X 1.11^3)+(1260 X 1.11^2)+(1480 X 1.11)+(2220)
Future Value = 1409 + 1552 + 1643 + 2220 = $6,824
c. If the discount rate is 24 percent, what is the future value of these cash flows in Year 4
Future Value = (1030 X 1.24^3)+(1260 X 1.24^2)+(1480 X 1.24)+(2220)
Future Value = 1964 + 1937 + 1835 + 2220 = $7,956
