Fundamentals of Corporate Finance
Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 6, Problem 6.1CTF

Two years ago, you opened an investment account and deposited $5,000. One year ago, you added another $2,000 to the account. Today, you are making a final deposit of $7,500. How much will you have in this account three years from today if you earn a 14 percent rate of return?

Expert Solution & Answer
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Summary Introduction

To calculate: The present value at 14% for 3 years

Introduction:

The present value of future cash flows that is discounted at a particular rate of discount is called as present value.

Answer to Problem 6.1CTF

Person X will have $24,116.57 in his account after three years from the present.

Explanation of Solution

Given information:

Person X has opened an investment account in which he had deposited $5,000 before two years and added $2,000 to it before one year. Presently, he made a final deposit of $7,500. The return rate is 14%.

Formula to calculate the future value:

Future cash flow=PV(1+r)t

Note: PV denotes the present value, r denotes the rate of discount and t denotes the number of years.

Compute the future value:

Future cash flow=PV(1+r)t=$5,000(1+0.14)5+$2,000(1+0.14)4+$7,500(1+0.14)3=$5,000(1.925414582)+$2,000(1.68896016)+$7,500(1.481544)

=$9,627.072912+3,377.92032+11,111.58=$24,116.57

Hence, the future cash flow is $24,116.57.

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Chapter 6 Solutions

Fundamentals of Corporate Finance

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