Fuente, Inc., has identified an investment project with the following cash flows. Year Cash Flow 1 $ 950 2 1,180 3 1,400 4 2,140 a. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4?

$6,225.08

Explanation:

The computation of the future value of these cash flows in year 4 is shown below:

= Year 1 cash flow × (1 + interest rate)^year + Year 2 cash flow × (1 + interest rate)^year + Year 3 cash flow × (1 + interest rate)^year + Year 4 cash flow × (1 + interest rate)^year

= $950 × 1.08^3 + $1,180 × 1.08^2 + $1,400 × 1.08^1 + $2,140

= $950 × 1.259712  +  $1,180 × 1.1664  + $1,400 × 1.08 + $2,140

= $1,196.7264  + $1,376.352  + $1,512  + $2,140

= $6,225.08

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