7) Twelve months from now, what is the total of the value of the required cash payments? Show your calculations. (3 marks)

The total value of payments = $2,800,000+$1,000,000*10% = $2,900,000

FV=$2,900,000 Future Value of the required payment for expansion twelve months from now

Is this the correct method?

The prof replied with this:

Hi Michael,

You have correctly identified that the final payment as been adjusted. However, 2.8 million is still in question. These are the payments added together of course, but payments are at different times. From what we have covered in the course, the equivalent values and focal dates must be considered before adding values together.

Matthew

However, the previous question 6, is right here:

6) What is the equivalent value, twelve months from now, of the cash available to fund the expansion? Show your calculations. (2 marks)

PV=2,600,000, I/Y=5.2%, i=5.2/4 =0.013;n=4

FV = PV (1+i)^n

FV = 2,600,000 (1.013)^4

FV=2,600,000 (1.053022816561)

FV= 2,737,859.3230586

FV= 2,737,859.32 value of the fund available for expansion twelve months for now