You are expecting annual cash flows of $80,000 in years 1-5; $95,000 in years 6-20; and $105,000 in years 21-50. If the rate of interest is 10% compounded annually, calculate the future value of this cash flow stream.

Question

Quizplus · Accepted Answer

The future value of each segment of cash flows is calculated separately using the future value of an annuity formula and then summed up. The future value of the first segment (years 1-5) is calculated and compounded to year 50, the second segment (years 6-20) is compounded to year 50, and the third segment (years 21-50) is already at year 50. Summing these gives approximately $105.54 million.

You Are Expecting Annual Cash Flows of $80,000 in Years