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 + rn

=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