Calculations of Value of Money.
Calculations of Value of Money
You are the chief financial officer of a firm. The firm has an expected liability (cash outflow) of $2 million in ten years at a discount rate of 5%.
Calculate the amount the firm would need on the present date as savings to cover the expected liability.
Calculations
Future value (FV) = PV (1 + r) n
=2000000(1+.05)10
=2000000*1.6289
=$3257789.25
Calculate the amount the firm would need to set aside at the end of each year for the next ten years to cover the expected liability.
PV(C10) = C10 / (1+r)10
= $2,000000 / (1.05)10
= $1227826.51