The worth of $100 cash flow today, a $1,000 cash flow at the end of 1 year, and a $100,000 cash flow at the end of five years at the end of 5 years will be $100964.912
What is the future value?
The future value of present cash flows refers to the value of present cash flow in the future at a certain discounting rate. The future value is less than the present value due to effects of inflation.
The formula to calculate future value is:
[tex]\rm FV = \dfrac{PV}{(1 + r)^n}[/tex] , where FV is the future value, PV is the present value, r is the rate of interest and n is the number of years.
The FV of the cash flows will be:
[tex]\begin{aligned} \rm FV &= \dfrac{100}{(1 + 0.04)^5} + \dfrac{1000}{(1 + 0.04)^4} + 100,000\\\\&= 96.1538 + 961.5384 + 100,000\\\\&= \$101,057.6922\end[/tex]
Since the cash flow of $100 is to be calculated after 5 years, it is discounted for 5 years. The cash flow of $1000 is to be received at the end of 1 year, hence discounted for 4 years. No discounting is needed for the cash flow of $100,000 received after 5 years.
Therefore the answer will be $101,057.6922.
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