Global Shippers Inc. has forecasted earnings of $1,233,600, $1,345,900, and $1,455,650 for the next three years. What is the future value of these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To find the future value of these earnings, we need to use the formula for calculating the present value of an annuity.

PV = C * [(1 - (1 + r)^-n) / r]

Where: 
C = the cash flow in each period 
r = the discount rate 
n = the number of periods

Using the formula, we can calculate the present value of each cash flow and then sum them up to find the total present value of the earnings.

PV of Year 1 earnings = $1,233,600 / (1 + 0.13)^1 = $1,090,265 
PV of Year 2 earnings = $1,345,900 / (1 + 0.13)^2 = $1,052,919 
PV of Year 3 earnings = $1,455,650 / (1 + 0.13)^3 = $1,115,517

Total PV = $1,090,265 + $1,052,919 + $1,115,517 = $3,258,701

Therefore, the future value of these earnings at a 13% opportunity cost is:

FV = $3,258,701 x (1 + 0.13)^3 = $4,551,701

Hence, the best choice is option B.