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Find the future worth of the cash flow diagram below
Find the future worth of the cash flow diagram below. Assume i=10% per year. F10 = ? 1 2 3 4 5 6 7 8 9. 10 $400 $500 $600 $700 $800 i = 10%/year $900
Expert Solution
Now, the cash flows at each time is given in the diagram. There are cash flows of $900 at time 0,1,2,3,4. There are cash flows of $800 at time 5, $700 at time 6, $600 at time 7, $500 at time 8, and $400 at time 9. We need to calculate future worth at time 10, with the interest rate of 10% per year. Note that the Future Value factor for any cash flow at time t to time 10 is given by:
FV factor = (1 + i)10-t
Hence, the future worth of the given cash flows at time 10 is:
$900 × 1.1010 + $900 × 1.109 + $900 × 1.108 + $900 × 1.107 + $900 × 1.106 + $800 × 1.105 + $700 × 1.104 + $600 × 1.103 + $500 × 1.102 + $400 × 1.10 = $13890.88
Hence, the future worth is $13890.88
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