You have just purchased an investment that generates the following cash flows for the next four years. You are able to reinvest these cash flows at 10.42 percent, compounded annually. How much is this investment worth at the end of year four?
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Question
You have just purchased an investment that generates the following cash flows for the next four years. You are able to reinvest these cash flows at 10.42 percent, compounded annually. How much is this investment worth at the end of year four?
Solution
Determine the investment worth at the end of four years from now:
Year
Cash flows
Future value factor @ 10.42%
Future value
cash flow
1
$ 10,000
1.486589
$ 14,865.89
2
$ 20,000
1.346304
$ 26,926.09
3
$ 30,000
1.219258
$ 36,577.73
4
$ 40,000
1.104200
$ 44,168.00
Future value of cash flows
$ 122,537.71
Therefore, the Future value of cash flows is $ 122,537.71.
Note:
As there is no information regarding cash flows, it is assumed that cash flows are $10,000, $20,000, $30,000 and $40,000 for year 1 to year 4 respectively. If the cash flows are diffrent from these, you can replace real cash fows with existing cash flows.
Year 
Cash flows 
Future value factor @ 10.42% 
Future value cash flow 
1 
$ 10,000 
1.486589 
$ 14,865.89 
2 
$ 20,000 
1.346304 
$ 26,926.09 
3 
$ 30,000 
1.219258 
$ 36,577.73 
4 
$ 40,000 
1.104200 
$ 44,168.00 


Future value of cash flows 
$ 122,537.71 
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