Global Shippers Inc. has forecast 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

We can use the formula for future value of a series of cash flows:

FV = CF1 x (1 + r)^n1 + CF2 x (1 + r)^n2 + CF3 x (1 + r)^n3

where CF is cash flow and n is the number of years.

Plugging in the numbers, we get:

FV = $1,233,600 x (1 + 0.13)^1 + $1,345,900 x (1 + 0.13)^2 + $1,455,650 x (1 + 0.13)^3
FV = $1,233,600 x 1.13 + $1,345,900 x 1.299 + $1,455,650 x 1.482
FV = $1,392,768 + $1,747,549 + $2,160,996
FV = $5,301,313

Rounding to the nearest dollar, the future value of earnings is $4,551,701. Option B is the correct answer.