CHAPTER 4 Time Value of Money 173TABLE 4.3 Future Value of a Mixed Stream
of Cash FlowsNumber of years Future value
Cash flow earning interest (n) FVIF8%,na [(1)(3)]
Year (1) (2) (2) (4)1 $11,500 5 1 4 1.360 $15,640.00
2 14,000 5 2 3 1.260 17,640.00
3 12,900 5 3 2 1.166 15,041.40
4 16,000 5 4 1 1.080 17,280.005 18,000 5 5 0 1.000b (^1) (^8) , (^0) (^0) (^0) . (^0) (^0)
Future value of mixed stream $
8
3
,
6
0
1
.
4
0
aFuture value interest factors at 8% are from Table A–1.
bThe future value of the end-of-year-5 deposit at the end of year 5 is its present value because it earns
interest for zero years and (10.08)^0 1.000.
those shown in Table A–1. Table 4.3 presents the calculations needed to find the
future value of the cash flow stream, which turns out to be $83,601.40.
Calculator Use You can use your calculator to find the future value of each
individual cash flow, as demonstrated earlier (page 157), and then sum the future
values, to get the future value of the stream. Unfortunately, unless you can pro-
gram your calculator, most calculators lack a function that would allow you to
inputall of the cash flows,specify the interest rate, and directly calculate the
future value of the entire cash flow stream. Had you used your calculator to find
the individual cash flow future values and then summed them, the future value of
Shrell Industries’ cash flow stream at the end of year 5 would have been
$83,608.15, a more precise value than the one obtained by using a financial table.
Spreadsheet Use The future value of the mixed stream also can be calculated as
shown on the following Excel spreadsheet.
If Shrell Industries invests at 8% interest the cash flows received from its cus-
tomer over the next 5 years, the company will accumulate about $83,600 by the
end of year 5.