Answer:
$1428.69
Explanation:
Here are the cash flows used in answering this question :
Year Cash Flow
1 $1,485
2 1,605
3 ?
4 2, 205
The present value of the cash flows is $5,976.97. This includes the value of the unknown year 3 cash flow
To find the value of the unknown year 3 cash flow, we have to determine the present value of the cash flows excluding year 3's cash flow (i.e. year 3 's cash flow would be zero).
Then we subtract the value we get from the above step from $5,976.97 .
We then find the future value of the figure from the above step.
Present value is the sum of discounted cash flows
Present value can be calculated using a financial calculator
Cash flow in year 1 = $1,485
Cash flow in year 2 = 1,605
Cash flow in year 3 = 0
Cash flow in year 4 = 2205
I = 4.6%
PV = $4728.60
$5,976.97 - $4728.60 = $1248.37
Formula for calculating future value
The formula for calculating future value:
FV = P (1 + r)^n
FV = Future value
P = Present value
R = interest rate
N = number of years
$1248.37(1.046)^3 = $1428.69
To find the PV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
