FIN3704
Assignment 5
Semester 2
DUE 15 October 2024
Detailed Solution & Answers
, Question 1 (10 Marks)
Given the following set of cash flows:
Period Cash Flow
1. R45,000
2. R40,000
3. R35,000
4. R30,000
5. R25,000
a. Present and Future Value of the Cash Flows
The present value (PV) and future value (FV) of a series of cash flows can be calculated
using the formula:
• Present Value (PV):
𝐶𝐹𝑡
𝑃𝑉 = ∑
(1 + 𝑟)𝑡
𝑤ℎ𝑒𝑟𝑒 𝐶𝐹𝑡 𝑖𝑠 𝑡ℎ𝑒 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑎𝑡 𝑡𝑖𝑚𝑒 𝑡𝑡𝑡, 𝑎𝑛𝑑 𝑟𝑟𝑟 𝑖𝑠 𝑡ℎ𝑒 𝑑𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒 (9% 𝑖𝑛 𝑡ℎ𝑖𝑠 𝑐𝑎𝑠𝑒).
• Future Value (FV):
𝐹𝑉 = ∑𝐶𝐹𝑡 × (1 + 𝑟)𝑛−𝑡
𝑤ℎ𝑒𝑟𝑒 𝑛𝑛𝑛 𝑖𝑠 𝑡ℎ𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑒𝑟𝑖𝑜𝑑𝑠 (5), 𝑎𝑛𝑑 𝑡𝑡𝑡 𝑖𝑠 𝑡ℎ𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑡ℎ𝑒 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑜𝑐𝑐𝑢𝑟𝑠.
The present value (PV) and future value (FV) for the given cash flows:
Period Cash Flow (R) PV at 9% (R) FV at 9% (R)
1 45,000 41,284.40 69,349.49
2 40,000 33,689.47 61,448.00
3 35,000 27,080.12 54,028.82
4 30,000 21,294.69 47,038.50
5 25,000 16,237.74 40,481.25
Total 139,586.42 272,346.06
• Total PV: R139,586.42