Question

What is the future value in year 25 of the following cash flow stream given an expected return of 6.5% annually? All cash flows occur at the end of the year.
Year 1 $20,000
Years 2-5 $40,000 per year
Year 6 $120,000
Years 7-10 $10,000 per year

Answer 1

What is the future value in year 25 of the following cash flow stream given an expected return of 6.5% annually? All cash flows occur at the end of the year.

Year 1 $20,000

Years 2-5 $40,000 per year

Year 6 $120,000

Years 7-10 $10,000 per year

$$FV = PV \cdot (1 + i)^t$$ $$FV = PV \cdot (1 + rt)$$

For second year we calculate FCF = (20,000 + 40,000) * (1 + 0,065), so we add to new cash flow the previous accumulated sum.