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Given a 4% required return, what is a $100 cash flow today, a $1,000 cash flow...

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Finance

Given a 4% required return, what is a $100 cash flow today, a$1,000 cash flow at the end of 1 year, and a $100,000 cash flow atthe end of five years, worth to you TODAY? Referring to thequestion above, what would those same cash flows be worth to you atthe end of five years?

Answer & Explanation Solved by verified expert
4.5 Ratings (881 Votes)

Cash flow
Discount rate 0.04
Year 0 1 2 3 4 5
Cash flow stream 100 1000 0 0 0 100000
Discounting factor 1 1.04 1.0816 1.124864 1.1698586 1.216653
Discounted cash flows project 100 961.5385 0 0 0 82192.71
NPV = Sum of discounted cash flows
NPV Cash flow = 83254.25
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor

FV

Future Value
Last period= 5
Compounding rate 4.000%
Year 0 1 2 3 4 5
Cash flow stream 100 1000 0 0 0 100000
Compounding factor 1.217 1.170 1.125 1.082 1.040 1.000
Compounded cash flows   121.665 1169.859 0.000 0.000 0.000 100000.000
FV = Sum of compounded cash flows
FV= 101291.52
Where
Compunding factor = (1 + rate)^(Last period-Corresponding period in years)
Compounded Cashflow= Cash flow stream*compounding factor
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