Havana, Inc., has identified an investment project with the following cash flows.

Havana, Inc., has identified an investment project with the following cash flows.

Year	Cash Flow
1		$	980
2			1,210
3			1,430
4			2,170

Requirement 1:

Assume the discount rate is 6 percent, what is the future value of these cash flows in Year 4? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Future value

$

Requirement 2:

What is the future value at an interest rate of 14 percent? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Future value

$

Requirement 3:

What is the future value at an interest rate of 21 percent? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Future value

$

rev: 04-30-2011

Explanation:

To solve this problem, we must find the FV of each cash flow and sum. To find the FV of a lump sum, we use:

FV = PV(1 + r)t

FV@6% = $980(1.06)3 + $1,210(1.06)2 + $1,430(1.06) + $2,170 = $6,212.55

FV@14% = $980(1.14)3 + $1,210(1.14)2 + $1,430(1.14) + $2,170 = $6,824.63

FV@21% = $980(1.21)3 + $1,210(1.21)2 + $1,430(1.21) + $2,170 = $7,407.99

Notice, since we are finding the value at Year 4, the cash flow at Year 4 is simply added to the FV of the other cash flows. In other words, we do not need to compound this cash flow.

Calculator Solution:

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

CFo	$0	CFo	$0	CFo	$0
C01	$980	C01	$980	C01	$980
F01	1	F01	1	F01	1
C02	$1,210	C02	$1,210	C02	$1,210
F02	1	F02	1	F02	1
C03	$1,430	C03	$1,430	C03	$1,430
F03	1	F03	1	F03	1
C04	$2,170	C04	$2,170	C04	$2,170
F04	1	F04	1	F04	1
I = 6		I = 14		I = 21
NPV CPT		NPV CPT		NPV CPT
$6,212.55		$6,824.63		$7,407.99